Provider scale has the potential to shape health care in powerful ways.
The healthcare industry is experiencing a seismic shift as providers pursue realignment. The news is filled with stories of mergers, consolidations, acquisitions, partnerships, and new risk arrangements. However, the jury is still out on the ultimate impact of this movement toward scale. I expect the debate to continue for the foreseeable future.
Industry experts in favor of consolidation make the case that large, integrated providers will be able to offer superior services, coordinate care as never before, and achieve the cost reductions that are being demanded by healthcare purchasers. In short, consolidation will bring about better quality of care at lower prices. That’s the very essence of the value that our industry is striving toward.
Yet others forecast the opposite effect. They fear that consolidation will create higher prices for consumers and result in less autonomy for physicians. They express concern that the healthcare landscape could become antithetical to healthy competition among providers.
As University of Georgia economics professor William Vogt pointed out at the 2013 HFMA Thought Leadership Retreat, we saw a wave of hospital and health system mergers like this back in the 1990s. That wave was followed by price increases in the vicinity of 30 percent.
A crackdown by federal antitrust authorities ensued. That experience should and does remain a cautionary tale for us today.
Nonetheless, there is tremendous potential in the movement toward scale. It can bring about changes that will benefit everyone. Organizations that achieve scale will be able to realize cost-saving efficiencies across the board and pass those savings along to patients. Perhaps more important, they can build true integrated networks, enabling the kind of value-based payment methodologies (like taking on risk) that are necessary today.
The movement toward scale comes at a time when the built-in checks to prevent antitrust violations have never been stronger. The Federal Trade Commission (FTC) is actively challenging and blocking health system mergers that it believes would stifle competition. It did so 17 times in FY11 (the most current year for which statistics are available). Furthermore, in last year’s Supreme Court case Federal Trade Commission v. Phoebe Putney Health System, Inc., the court unanimously voted to strengthen the FTC’s power to block hospital mergers that it believes would violate antitrust laws.
At the end of the day, common sense should prevail. It simply isn’t in the long-term interests of consolidating providers to misuse scale by pricing or repricing services to the detriment of the communities they serve. Mergers only make sense when they drive a lower-cost offering to the market and create a better value proposition for consumers. I believe this is exactly what the majority of mergers being proposed today can do, but we need data to measure the potential value to the marketplace (in addition to the benefit to the provider organizations involved). Providers understand that they must stay efficient and strong to be competitive in today’s rapidly evolving marketplace. When a move toward scale makes that possible, that move should be allowed to happen.
From the President's Desk
Joe Fifer expands on the ideas in his March column.
Publication Date: Monday, March 03, 2014