Vital Signs Blog

Halting hospital mergers not the same as boosting competition

Two recent court decisions prohibiting healthcare mergers in Idaho and Massachusetts indicate there is growing skepticism about assertions that healthcare combinations will lower costs by streamlining operations and coordinating care.

While the jury is clearly still out on the benefits of healthcare mergers, it would be a mistake to think simply preventing them will magically increase competition, much less achieve the goal of lower costs.

Writing in this week's New England Journal of Medicine, Harvard professor Regina Herzlinger and two Duke University professors attacked the Bay State attorney general's agreement that allowed a now-cancelled merger between Boston-based Partners HealthCare and two suburban hospitals.

Supporting the local judge who ruled against the merger, they called it an unworkable price regulation scheme. “It applied a utility regulatory model, treating Partners as if it were a natural monopoly whose continued existence is essential,” they wrote.

Hospitals are not natural monopolies with massive fixed costs that “obviate duplication,” they wrote. “Innovative, low-cost competitors to most hospital services could abound.” They offered two examples: telemedicine and community-based urgent care centers.

Rather than try to regulate massive healthcare systems that concentrate assets in large holding companies, policymakers should encourage payment reform that rewards quality and cost-effectiveness; liberalize scope-of-practice regulations and licensing rules to allow more efficient use of human resources; and loosen “anti-kickback rules and reimbursement restrictions to enable providers to pursue creative, integrated ventures that could revolutionize the delivery of care.”

Forget for a moment that large parts of core hospital operations are capital intensive and lend themselves very well to regulatory oversight. Most big healthcare system leaders would have no problem with Herzlinger's deregulation agenda.

Many of them are already promoting telemedicine initiatives and looking for ways to coordinate care with urgent care centers. Loosening the anti-kickback rules would provide just as much benefit to large systems that have been buying physician practices as it would to the doc-owned ambulatory surgical centers that are eating away at their core service lines.

Maybe it's not an either-or proposition. The drive to deliver better coordinated care inevitably leads to greater vertical integration. Those organizations can be allowed as long as they are closely monitored by government regulators to ensure they don't abuse their market power.

At the same time, the government needs to peel away the unnecessary regulations that have prevented innovative start-ups from identifying the inefficiencies in concentrated systems. They need to be given the freedom to create alternatives that either lower costs, improve outcomes or, hopefully, both.

Follow Merrill Goozner on Twitter: @MHgoozner


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