Responses to Provider Consolidation

By November 4, 2019 Commentary

As we constantly (and probably tiresomely for readers) note, the immense provider consolidation in the United States has not been good for costs or quality.  Belately, many policymakers are noting that this is a problem.  So how is it being addressed?  A report from an organization called the Center for Health Insurance Reform describes efforts in six states to respond to provider consolidation and market power.   (CHIR Report)   The markets are Detroit, Syracuse, Northern Virginia, Indianapolis, Asheville and Colorado Springs.  The report is not quantitative–it doesn’t give market share data or specific impact on before and after pricing; but we have lots of other reports to amply demonstrate the adverse effects.  The authors interviewed a number of affected market participants and attempted to ascertain what payers and employers could do or have done to address the effect of provider consolidation.  Among these markets, only one, Indianapolis, was not judged highly concentrated and it was moderately concentrated.  In all these markets, hospital systems have become dominant and have become health systems by virtue of vertical consolidation.  They then use excessive profits to engage in marketing and brand-building which persuades consumers that they must use the system.  And they get contractual terms with payers that limit the ability of the few independent providers to grow or be a meaningful alternative.  In addition, in four of these markets there is a single dominant insurer, a Blues plan.  While you might think that having offsetting dominant players on both sides of a transaction would result in lower or at least moderated prices, that is not the case.  Instead both sides decide to screw the real payers, employers and consumers, by allowing high prices to providers and charging employers and individuals higher premiums.  The report gives multiple examples of health plans inability or unwillingness to address high provider prices and the limitations of the tools available to employers, much less individuals.

Let us keep the big picture in mind.  Higher health spending and health spending growth in the United States is due to higher prices, not excessive utilization, not the much ballyhooed supposed waste or low-value care.  It is prices, pure and simple.  Two primary sources of this high and growing price trend are a complete failure to use the patent system to rein in excessive prices for proprietary drugs and a complete failure to in any systematic or comprehensive manner ensure that the provider system remains competitive.  Our pricing and health spending problem won’t change unless and until we address those two issues.  But our stupid political system, which allows those with the most financial resources to dominate elections and policymaking, is a serious hindrance to action.  It will be hard to get meaningful action on these or other issues until we fix campaign financing and lobbying.  And while I am a firm and staunch believer in real free-market economics, the providers and drug companies and health plans, who have completely failed to exercise any restraint on their greed, will get exactly what they deserve if they either get regulated out of existence or face extensive price controls.  But patients and consumers will suffer.  A much better approach would be to forcibly break up all these health systems, especially vertically.  Health plans should also be forced to reduce their market shares.  And drug company patents should be specifically conditioned on limited profitability in initial pricing and no price increases beyond actual cost of production rises.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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