Abolishing certificate-of-need laws and increasing incentives for quality are among the ways to enhance healthcare competition and better serve consumers, according to a report released last week by federal antitrust regulators.
The day after the 9/11 Commission released its report, the Federal Trade Commission and the U.S. Justice Department's antitrust division issued a tome of their own which, while not as earth-shattering, serves as a weighty overview of healthcare competition.
In the 361-page report titled "Improving Health Care: A Dose of Competition," the agencies recommend removing barriers to competition, such as state certificate-of-need programs and state licensing laws that restrict out-of-state competitors and slow the spread of telemedicine.
The report also encourages the growth of pay-for-performance incentives and urges state legislators to reject proposed legislation allowing independent physicians to collectively bargain. The report does not carry the weight of law but is intended as an educational tool and resource to advise providers, government regulators and consumers on healthcare competition.
"In a field where policy is made by challenges and court cases, it's useful to put together a document like this that conveys what the Justice Department and FTC views are on various issues," said economist Paul Ginsburg, president of the Washington-based Center for Studying Health System Change and a witness at the hearings that led to the final report.
The report was culled from 6,000 pages of transcripts spanning 27 days of joint hearings and workshops from the testimony of more than 250 panelists, including many hospital and health system executives and association leaders. The report examines healthcare competition and how it can be improved to help consumers. It explores the role of antitrust regulators in protecting and stimulating that competition. The paper provides insights into the thinking of the two antitrust agencies, a comprehensive view of various components of the healthcare industry and a synopsis of the laws, government agencies and incentives driving the behavior of hospitals, physicians, pharmaceutical companies, long-term-care providers and health insurers. It also issues recommendations aimed at influencing state and federal legislatures, courts and government regulatory bodies.
Two chapters focus on issues relating to hospitals, including consolidation, specialty hospitals, CON laws, ambulatory surgery centers and government purchasing of hospital services. The report recommends increased transparency in pricing and urges payers and providers to continue to negotiate incentives to lower cost and improve quality. "Most payments to providers have no connection with the quality of care provided," the report notes.
The agencies urge states to decrease barriers to market competition by scuttling CON programs and broadening membership of state licensure boards to include consumers and allied health professionals less likely to try to protect existing providers from competition.
It advises re-examining government subsidies to special providers, such as academic medical centers and hospitals serving disproportionately poor populations, which the agencies said distort competition. The report proposes that legislators reject collective bargaining efforts by independent physicians, which they said increase prices without improving quality.
Ginsburg said that since FTC Chairman Timothy Muris was appointed in 2001, the agency has taken an aggressive position to enforce antitrust laws. It has challenged more than 15 independent physician associations, undertaken a retrospective review of previously consummated hospital mergers and challenged its first hospital merger in six years.
"The FTC-Justice Department's views on hospital mergers will have some impact," he said. "That is their job and they have tools for that. But I wouldn't expect states to be swayed by their preaching to abolish CON laws and reduce barriers for specialty hospitals."
Anne Haule, a healthcare lawyer with Ungaretti & Harris who represents hospitals in transactional and regulatory cases, said the report's findings may not be greeted with great enthusiasm by tax-exempt hospitals.
"Nonprofit hospitals view certificate-of-need laws as necessary protections. This report seems to urge their elimination and let the free market reign," Haule said. "I think that's going to be viewed as problematic by tax-exempt hospitals in states with CON laws. But the FTC is looking at this from the perspective of consumers, not competitors." (For previous coverage of the CON issue, see editorial, July 19, p. 20).
The report recommends further research into how to define hospitals' geographic markets and challenges some assumptions held by courts and healthcare antitrust lawyers, arguing that the institutional status of a hospital should not affect the government's analysis of a merger. "The nonprofit status of a hospital should not be considered in determining whether a proposed hospital merger violates antitrust laws," the report states.
The agencies also rejected the use of "community commitments," such as guarantees to form healthcare foundations, reduce prices or offer services to avoid antitrust scrutiny as a means of resolving potential anticompetitive effects of a hospital merger, a practice employed by some state attorneys general.
FTC Special Counsel David Hyman, who served as project leader for the agencies preparing the report, said he hopes the report sketches a framework for government agencies and providers to consider the anticompetitive side effects of regulation.
"This is a sustained treatment of policy implications, looking at the downside of getting it wrong and the upside of getting things right," he said.
