Quality, Prices, and Health System Consolidation

The healthcare landscape is changing rapidly, but will we be happy with the outcome? The challenge of coordinated care, nascent accountable care organizations (ACO), and evolving integrated provider/payer entities that manage care on behalf of Medicaid programs, are supporting the rationale for increasing consolidation across providers. It is unclear whether this rationale holds water or is a cover for aggressive (or defensive depending on your viewpoint), market repositioning.

Federal regulation of the healthcare marketplace has a troubled history. While the Department of Justice and Federal Trade Commission hold to the core principle that consolidation that eliminates competition will result in higher prices and ultimately lower quality, plenty of opponents have lined up to describe the special situation of health care. In fact, until a successful post-merger challenge against Evanston Northwestern Corporation, the federal agencies had not won a single challenge against hospital system mergers in over a decade (Rice, 2010). In general, public sentiment, and by extension the legal system, tends not to side with powerful local monopolies.

Health care systems are different. They tend to be well financed, but not for profit. They raise prices for insurers, but not directly to consumers. Most importantly, they are run by the guys in white coats that we need to trust when we are ill. The confluence of these factors leads to scant public support for aggressive regulation.

From a federal viewpoint, the trend to consolidation is a multi-headed beast comprised of multiple politically sensitive local arrangements rather than one large industrial violation. This requires the dedication of huge resources many times over, each with the potential for adverse fallout. In short, despite the federal agencies’ success in the Evanston case, the ramifications of which are still rumbling through the courts, federal intervention, particularly postfact intervention, is unlikely to turn the tide of consolidation. All of which makes recent developments in Massachusetts interesting.

In 2012, Massachusetts established the Health Policy Commission (HPC) as part of their health care cost containment law (www.mass.gov). The HPC is responsible for “developing health policy to reduce overall cost growth while improving the quality of care, and monitoring the health care delivery and payment systems in Massachusetts.” While the HPC does not have direct statutory authority, it has been tasked specifically with making recommendations in precisely those circumstances where consolidation that reduces competition is promoted as a necessary price for enhanced quality that results from greater coordination. It did not take long for the HPC to pick up its first controversial case.

In its final report the HPC recommended that Partners HealthCare system’s proposed acquisition of South Shore Hospital and Harbor Medical Associates be referred to the State’s office of the Attorney General. The HPC has served its purpose and provided a clear well-structured analysis, but it is unclear what the final outcome will be. In his regular blog, John Mcdonough of the Harvard School of Public Health highlighted the HPC recommendation and the political challenges of regulating a local giant in a gubernatorial election cycle. His blog is tracking responses to the deal by those in charge of reining in health care costs.

Proponents of the proposed merger emphasize the benefits of improved quality that will result in stable or even decreased costs per patient. The HPC, on the other hand, believes that increases in the average price for a unit of service will outweigh reductions in service volume from increased quality. We believe there is a way to thread the needle between these two clearly disparate perspectives. We suggest that both sides focus regulation on improving quality outcomes – especially those outcomes for which we can assign a dollar value. These outcomes are an aggregation of potentially preventable complications, ER visits, initial hospital and/or nursing home admissions, hospital and/or nursing home readmissions, and outpatient services. Summed up, dollars associated with these potentially preventable events (PPEs) constitute services that are necessary if a health system delivers effective care. As already highlighted in previous blogs, such an approach is completely transparent and provides the payer, the provider and the consumer with the information needed to monitor progress. We would also suggest that the unit price of all health care services (potentially preventable and not preventable) be measured using prospective payment such as Diagnosis Related Groups. The Massachusetts State Medicaid program (among many other state Medicaid programs, commercial payers and the federal government) already pays for many services using prospective payment.

Knowing what is preventable and what is not preventable, we recommend that the merger be allowed to proceed for a defined period of time that would allow Partners to implement their approach to coordinated care (e.g. three years). As part of this agreement, they would have to commit to a percent decrease in PPEs (e.g. 10 percent) and stabilized prices of the non-PPE events. In the aggregate this would result in a decrease in health care expenditures. If the Partners merger did not achieve these results, the merger could either be unwound or Partners would agree (in advance and as part of the merger agreement) to a decrement in payment to make up for the missed financial goals.

Policymakers could adopt a similar approach in evaluating other coordinated care initiatives. New York, Texas, and other states have done just that and adopted PPEs for purposes of both profiling and financial incentives. We can support diminished competition as long as it results in an improvement of measurable outcomes and costs in a manner that all parties can agree on.

Richard Fuller, MS, is an economist with 3M Clinical and Economic Research.

Norbert Goldfield, MD, is medical director, Clinical and Economic Research,  3M Health Information Systems.

Rice, E. L. (2010). Evanston’s Legacy: A Prescription for Addressing Two-Stage Competition in Hospital Merger Antitrust Analysis. Boston University Law Review, 90, 431. Retrieved from https://www.bu.edu/law/central/jd/organizations/journals/bulr/documents/RICE.pdf

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