Conventional healthcare wisdom dictates that providers join forces to achieve grand economies of scale as they build sophisticated integrated delivery systems.
Mega-mergers that create organizations capable of managing care and assuming financial risk are viewed as the most efficient model. Even the Clinton administration has acknowledged that big networks can stabilize volatile, overbedded healthcare markets.
Many of these powerhouse health systems were formed by hospitals that once were fierce competitors. But with this new dominance comes the potential to set prices and stifle others from competing in the market. That's why government regulators continue to scrutinize these deals, albeit with declining frequency, for potential impact on pricing, competition and quality of care.
Two recent cases illustrate the complexity of analyzing, evaluating and monitoring the behavior of marketplace marriages. Both also spotlight the difficulty managers of monopoly or near monopoly organizations face in making prudent decisions that take into account their enviable roles as market leaders.
In Montana, Benefis Health Care is using its muscle to block others from opening surgical hospitals in Great Falls. Benefis, formed in the 1996 merger of Montana Deaconess Medical Center and Columbus Hospital, received antitrust clearance by agreeing to limit profits and pass on at least $86 million in savings to consumers.
But the agreement doesn't prohibit Benefis from undertaking legal moves to stop potential competitors, which is what happened when two firms attempted to open surgical hospitals in Great Falls.
The state of Montana can play an important role for regulators everywhere by allowing one or both of the projects to proceed. Benefis, which controls about 95% of the outpatient surgery market, may lose some business to smaller, more nimble competitors. But then there's nothing like a new challenge to keep a big player thinking about costs and customers.
The same goes in Manchester, N.H., where Optima Healthcare has filed suit challenging certificate-of-need approvals of open-heart surgery programs for hospitals in Concord and Portsmouth.
Optima, formed in 1994 through the merger of Manchester's only two hospitals (it since has added two more hospitals), operates one of only two open-heart programs in the state. That sounds like a pretty good position and one that shouldn't fear competition.