Hospital Consolidation and ACO’s

Jason Shafrin over at the Healthcare Economist points to this recent paper over at the RWJF. Interestingly the authors find that hospital consolidation increases prices and could decrease quality. Something that many of us have considered in the past.

In concentrated markets, the effects were even more pronounced with price increases over 20% noted.

Competition was noted to increase quality under an “administered” pricing system, ala the NHS in the UK. The evidence for competition increasing quality in a market system was much more mixed.

I have thought this for some time, and have even wrote about the concepts of leverage in the past. For example, I have cited a BNET article before. When one examines the the health markets in Milwaukee and Chicago, which are both midwestern cities, and geographically close to each other, one finds higher prices in Milwaukee, with providers not accepting less than 200% of Medicare. Which does not seem intuitive, as there is far more market competition in the health insurance industry there. In Chicago, one insurer, BC-BS, is rather dominant and prices are lower, with providers accepting 112% of Medicare on average. It would seem to make sense that increasing the leverage of the hospitals and providers through the mechanism of consolidation will increase prices. The same thing happens in Milwaukee, which has no dominant insurer, and therefore is unable to exert leverage over the hospital systems in Milwaukee.

The ACO models as proscribed by the ACA will increase consolidation. By developing an accountable model of care delivery, providers will attempt to consolidate to increase quality and minimize risk exposure in the sense of decreasing reimbursements.

The problem with the RWJF paper, as it rightly notes, is that the study does not really examine integrated health care systems. When you look at consolidation with true vertical and horizontal integration, it is my belief that quality improves even in the absence of competition. True integration in the case of Mayo Clinic and Kaiser also lowers prices.

In essence, I don’t think the problem is consolidation…..I think the problem is consolidation in the absence of integration.

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