by Paul Levy

First posted on (Not) Running a Hospital on 12/1/2012

Paul Levy, Host of (Not) Running a Hospital

Almost two years ago, I quoted Dartmouth’s Elliott Fisher facetiously remarking that we could not be sure whether accountable care organizations (ACOs) would actually be accountable, caring, and organized.  A year later, I warned about the dangers of industry consolidation, quoting from Federal Trade Commissioner J. Thomas Rosch:

“The net result” of ACOs, says Rosch, “may therefore be higher costs and lower quality health care—precisely the opposite of its goal.”

Events since that time should cause us concern.  Julie Creswell and Reed Abelson report in the New York Times about a consolidation and market share battle going on in Boise, Idaho.

Regulators expressed some skepticism about the results, for patients, of rapid consolidation, although the trend is still too new to know for sure. “We’re seeing a lot more consolidation than we did 10 years ago,” said Jeffrey Perry, an assistant director in the F.T.C.’s Bureau of Competition. “Historically, what we’ve seen with the consolidation in the health care industry is that prices go up, but quality does not improve.”

In an earlier Washington Post article, author Steven Pearlstein explained his concerns.  He noted:

Because there are often hospitals in each region that insurers must have in their networks to attract subscribers, dominant hospital chains are able to demand monopoly-like prices for their services. Insurers have responded by merging with other insurers in the hope of gaining negotiating leverage by becoming as indispensable to the hospitals as the hospitals are to them. To maintain their leverage, hospitals in turn have consolidated into bigger and bigger chains.

This arms race has produced repeated waves of consolidation that, rather than having led to lower prices, have led to higher prices, declining quality and less competition.

Look, what is going on in hospitals is similar to what has happened in other industries–telecommunications, banking, electric utilities.  The first refuge of corporate executives who face structural changes in their industries is to arrange mergers to gain market power and reduce risk.  I know of no industry in which unregulated market dominance has led to lower costs or greater customer choice.  Monopolies, after all, behave like monopolies. Neither Republicans nor Democrats have chosen to address these market power issues in the health care sector.