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Fewer Choices, Better Care?

Consolidation among health care groups shrinks competition in the marketplace, so what are the ramifications, and will health care prices ever moderate?

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From the pages of In Business magazine.

Mergers and consolidations are commonplace across industries, but nowhere, it seems, have they muddied the waters more than in health care. And why? Corporate power? Better consumer access? Lower health care costs?

According to a September 2017 article in the peer-reviewed journal Health Affairs [“Insurer Market Power Lowers Prices in Numerous Concentrated Provider Markets,” by Richard Scheffler and Daniel R. Arnold] there were 1,412 hospital mergers nationally between 1998 and 2015, with 40% taking place between 2010 and 2015 — thanks largely to the Affordable Care Act.

The good news is that Wisconsin traditionally has excellent health care. Recently, the federal Agency for Healthcare Research and Quality ranked the state No. 1 in overall health care quality, while health insurance costs ranked 11th best in a 2017 Huffington Post report.

But a lot is changing in the industry thanks to mergers and acquisitions, and locally there’s a whole lotta shakin’ going on, as well.

Can we maintain the health of our health care, or are we in for a sea change?

And what might consolidation mean to the average business or employee? Will any of this result in more affordable health care costs while maintaining quality?

The short answer: Probably not.

Health care catalysts

Suzanne Delbanco makes a living out of studying the affordable health care puzzle in hopes of finding a cure. Delbanco is the executive director of Catalyst for Payment Reform, an independent, nonprofit corporation working with employers, public purchasers, and others to implement strategies for efficient, high-quality health care.

“That’s what we set out to do,” Delbanco says, “but as we were trying to push for more payment reforms, we realized there was a tidal wave coming from the opposite direction that could easily swamp any benefits we might achieve through changing how we pay providers.”

That tidal wave was health care consolidation.

“Given the history that shows that when providers merge or acquire or integrate, somehow it leads to higher prices and no evidence that it leads to higher quality, we realized we could no longer be silent,” Delbanco says.

In 2012, the organization held a national summit on the topic in Washington, D.C. to raise people’s awareness of the trends and what it might mean for those who use and pay for care. It quickly learned that everyone from state policy makers to journalists to people in the health care industry also were seeking a keener understanding.

“It used to be that consolidation was a simple story,” Delbanco says, “hospitals merging with each other. But now it’s not just hospitals, it’s hospitals and health systems acquiring physicians groups, or what we call vertical integration.” Such arrangements keep patients within ownership groups and sometimes result in extra fees, she notes.

In its research, CPR has found that over the last decade, health care costs are not a result of pharmaceuticals, new technology, or the aging population. “The truth is, the largest driver has simply been that prices charged by providers are higher than they used to be,” Delbanco says.

Consolidation allows the organization with the largest market share a greater ability to call the shots and negotiate higher prices. “Even in nonprofit systems, it’s rare that they don’t take advantage of that market power,” she adds. “So regardless of the claims that everyone makes around efficiency and improved quality, the evidence hasn’t shown that lower prices or better care results.”

One reason, Delbanco explains, is that large health care systems typically negotiate across the board for insurance rates across all their regions.

“If you just look at the Greater Madison market, you wouldn’t realize that the larger systems might be using their market power in a way that’s not necessarily good for consumers, for example. You actually have to look across geographies. That doesn’t have precedent in the law, and that’s a new area people are starting to investigate because so many of the health insurers and providers cross state lines now. So it’s extremely complicated.”

In 2012, Robert Town, a health economist at the Wharton School at the University of Pennsylvania, researched national health system consolidations for the Robert Wood Johnson Foundation and concluded, “Health system mergers have worked out pretty well for management.”

Does the same hold true here?


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