Recently, 10 health care experts were asked to state 1 question they would ask the presidential candidates. Although they offered a variety of responses, 1 topic seemed dominant: what the next president would do to ensure competitiveness in the marketplace.
The next president must choose between dealing with the symptoms of an increasingly dysfunctional marketplace or dealing with one of the key underlying causes, namely, the market power of hospitals and health systems. If the Affordable Care Act (ACA) is to thrive under the next administration, the most important federal agency to ensure its success may not be the one that everyone focuses on, the Centers for Medicare & Medicaid Services (CMS). Instead, it may be the Federal Trade Commission (FTC), whose work to monitor and regulate the consolidation frenzy that has taken hold among physician practices, hospitals, and hospital systems that will likely have the biggest impact on the future viability of the ACA.
Types of Consolidation
Different types of consolidation have accelerated under the ACA. The first is “vertical” consolidation, by which hospitals purchase physician practices with the stated goal of streamlining and coordinating care to improve quality and outcomes. This type of consolidation has been around for a while, but the numbers have grown so substantially under the ACA that more than half of physicians are now employed by a hospital or a hospital system. The evidence shows that the effects of this type of consolidation are higher prices with little benefits on quality. There is no evidence that hospital-owned physician practices leave patients better off, but there is good evidence that they drive up prices paid by insurers.
“Horizontal” consolidation, by which hospital systems buy up other hospitals (or hospital systems), has also accelerated. The evidence indicates that this type of consolidation also results in higher prices and probably lower quality. With less competition, the quality of management in hospitals drops and the care people receive becomes more expensive and of lower quality.
The Effects of Consolidation
Continuing market consolidation may very well lead to higher prices in the private insurance market. This, in turn, has significant effects not only for employer-sponsored insurance but also for federal policy makers and the marketplaces established by the ACA. In the past, policy makers could afford to disregard the private insurance market and its effect on prices because high private insurance prices didn’t necessarily affect Medicare and Medicaid spending. Because Medicare and Medicaid both set their own prices, they are generally not affected by market consolidation. However, now that the federal government is responsible for subsidies on the health insurance exchanges and needs private insurance products to be affordable, paying close attention to the effect of consolidation on private insurance prices is critically important. As consolidation continues, rising prices will make insurance products less attractive to healthy people, further undermining the stability of the ACA marketplaces.
Consolidation also affects accessibility of networks in the marketplace. When consolidated delivery systems with substantial market power participate in the marketplace, insurance companies must either pay the higher prices or form narrow networks with a limited number of clinicians and hospitals or health systems. Narrow network plans allow consumers to access only a small subset of clinicians or hospitals in the marketplace. Although there is no evidence that care in narrow networks is of lower quality than care provided in broader networks, they do, by definition, restrict access. This comes with substantial political risk.
The inability to access care outside the health maintenance organization was one reason the public turned against managed care plans in the 1990s. If patients experienced an uncommon or severe illness, they often could not access the hospitals or physicians with the most expertise for those conditions. Over time, this problem eroded public confidence in managed care and led to its demise. We should worry about a similar erosion of confidence in ACA plans, as narrow networks become more commonplace and narrower and patients’ inability to access key specialists and services lead to high-profile media coverage about care denied.
Consolidation also may be harmful for some of the other provisions of the ACA, specifically the push towards alternative payment models. Emerging evidence suggests that vertically consolidated health care delivery systems that include both hospitals and ambulatory physician groups are not just pricier in the private market but also less capable of reducing volume and unnecessary health care services for public payers like CMS.
The most prominent of a variety of Obamacare efforts to reduce health care spending is the accountable care organization (ACO) program. Accountable care organizations, groups of physicians that sometimes include hospitals, agree to take responsibility for both the costs and the quality of care for a population of patients. Four years into the program, there is some evidence that ACOs may be saving the federal government money. However, much of that savings is coming from ACOs run by independent physician practices. The ACOs from consolidated health systems—the ones that have both hospitals and physician groups—are saving little if any money at all.
This, of course, makes sense. When an ACO includes a hospital, there is financial pressure to “fill the beds,” which makes saving money, especially by avoiding preventable hospitalizations, difficult. Therefore, based on the evidence to date, we should expect that as consolidation continues, the financial savings from ACOs will diminish because there will be fewer independent practices around to join the program. Consolidation poses a particular threat to the viability of ACOs.
Benefits of Competition
A robust literature on the benefits of competition in the health care marketplace shows that when health care markets are competitive, prices tend to be lower, quality tends to be higher, and people have more choices for care. Competition is a remarkably powerful tool that needs to be wielded more effectively. The good news is that ensuring competition is already the law of the land. The problem is that with the pace of consolidation, monitoring potential anticompetitive effects will be increasingly difficult as the FTC is tasked with examining a rapidly increasing number of mergers. The FTC needs renewed focus from policy makers to ensure that it can do its job effectively.
Of course, not all consolidation is bad. Some of it may lead to more integration and better patient care. However, many mergers today look more like consolidation, not integration, and simply give the provider more power in the marketplace, driving health insurance prices higher. Although the negative effects of these price increases used to be felt primarily by employers and employees (through forgone wages), they are now being felt by federal policy makers as well, through the influence on the ACA insurance exchanges and the effect on innovative care models like ACOs.
If the ACA is to thrive under the next president, he or she must ensure that we have a dynamic health care marketplace. For that reason alone, the ability of the ACA to fulfill its promise of greater access at an affordable price will depend as much on the effectiveness of the FTC as it will on the effectiveness of the CMS.
About the author: Ashish K. Jha, MD, MPH, is K. T. Li Professor of Global Health and Health Policy at the Harvard T. H. Chan School of Public Health and a practicing internist at the Veterans Affairs Boston Healthcare System. He received his doctor of medicine from Harvard Medical School and was trained in internal medicine at the University of California, San Francisco. He received his master’s in public health from Harvard School of Public Health. Dr Jha’s major research interests lie in improving the quality and costs of health care. His work has focused on 4 primary areas—public reporting, pay for performance, health information technology, and leadership—and the roles they play in fixing the US health care system.
About The JAMA Forum: JAMA has assembled a team of leading scholars, including health economists, health policy experts, and legal scholars, to provide expert commentary and insight into news that involves the intersection of health policy and politics, economics, and the law. Each JAMA Forum entry expresses the opinions of the author but does not necessarily reflect the views or opinions of JAMA, the editorial staff, or the American Medical Association. More information is available here and here.