qotd: Is health care consolidation for efficiency, or for market control? Check our prices.

The New York Times
September 17, 2014
F.T.C. Wary of Mergers by Hospitals
By Robert Pear

As hospitals merge and buy up physician practices, creating new
behemoths, one federal agency is raising a lonely but powerful voice,
suggesting that consumers may be victimized by the trend toward
consolidation.

Hospitals often say they acquire other hospitals and physician groups so
they can coordinate care, in keeping with the goals of the Affordable
Care Act. But the agency, the Federal Trade Commission, says that
mergers tend to reduce competition, and that doctors and hospitals can
usually achieve the benefits of coordinated care without a full merger.

The commission is using a 100-year-old law, the Clayton Antitrust Act of
1914, to challenge some of the mergers and acquisitions, and it has had
remarkable success in recent cases.

"Hospitals that face less competition charge substantially higher
prices," said Martin S. Gaynor, director of the F.T.C.'s bureau of
economics, adding that the price increases could be "as high as 40
percent to 50 percent."

Doctors and hospitals say they must collaborate to survive and thrive
under the Affordable Care Act.

But Deborah L. Feinstein, director of the bureau of competition at the
Federal Trade Commission, said the health care law did not repeal the
antitrust laws.

Often, Ms. Feinstein said, when hospitals and doctors join forces, their
goal is not just to control costs or improve care, but to "get increased
leverage" in negotiations with health insurance companies and employers.

"They say they need better rates so they will have more money to invest
in their facilities," Ms. Feinstein said. "When you strip that down,
it's basically just saying, 'We want a price increase.' Even if the
price increase is motivated by a desire to invest more in the business,
that's problematic. That incentive to invest may not be there if you
don't have competition as a spur to innovation — if you're not worried
about losing business to the hospital down the street."

The F.T.C. has long argued that mergers can cause higher prices by
reducing competition among hospitals in the same market. New research
suggests that another dynamic, rarely considered by antitrust officials,
can also lead to significant price increases.

The research shows that hospitals gain bargaining power when they are
acquired and become part of a big hospital system that has no other
presence in the local market.

"Acquisitions of hospitals by large national chains such as Hospital
Corporation of America, Ascension Health or Tenet Healthcare may not
increase hospital concentration in the affected local markets, but could
nevertheless generate higher prices," said Matthew S. Lewis, an
associate professor of economics at Clemson University.

http://www.nytimes.com/2014/09/18/business/ftc-wary-of-mergers-by-hospitals-.html

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Comment by Don McCanne

Integrating health care delivery services with the goal of improving the
quality and price efficiency of health care services for the community
at large is an admirable goal of the Affordable Care Act (ACA). The
merger mania taking place is being marketed as a means of achieving that
integration. Yet the monkey wrench in the model is the supposed
dependency on market competition instead of government oversight as a
means of providing higher quality at a lower cost.

Yet merging health care services with the claim that quality improves as
costs go down is proving to be a fraud. For the last century we have had
to enforce antitrust laws and regulations simply because market
consolidation results in oligopolistic control and higher prices
instead. We are now seeing this throughout our health care system as
providers recognize the business opportunities of greater clout in rate
negotiations made possible by anti-competitive consolidation. The FTC
has challenged less than one percent of these deals, indicating the
conflict within our government of supporting implementation of ACA as
opposed to protecting the public from unfair antitrust activities.

The flaw is to be found in the ACA model of reform. Excessive power has
been granted to private insurance intermediaries that negotiate in the
private sector with the providers. The tool they cite repeatedly is
competition. Yet not only do we have the seminal work of Nobel laureate
Kenneth Arrow, we also have decades of experience that confirms that
this fiction of a market has brought us an outrageously expensive system
with only mediocre outcomes on average.

All other wealthy nations cover everyone at an average cost of half of
what we spend per person. Their success is based on the role of
relatively rigorous government regulation or direct management. Even if
the FTC stepped up its antitrust functions, our private insurers would
continue to use a wide variety of business practices that advance their
own interests at our cost. The vested interests in the privately owned
sectors of the health care delivery system would also continue to
position themselves favorably.

If we had a single payer national health program with a not-for-profit
health care delivery system, our stewards would be left with the task of
trying to get the system to work best for the benefit of patients - all
patients. Would that be so terrible?