Farzad Mostashari, MD, the former National Coordinator for Health IT at the Department of Health and Human Services, and Martin S. Gaynor, a professor of economics and health policy, discuss how policy helps and/or harms competition in the healthcare marketplace.
Despite the near-universal agreement that the U.S. healthcare delivery system should remain market-based, there has been surprisingly little talk amongst government policy makers and private payers about the potential for stifling competition with over-regulation.
An essay this month in JAMA calls for a re-examination of how healthcare rules, regulations, and policies help or harm competition in the healthcare marketplace.
Farzad Mostashari, MD, the former National Coordinator for Health IT at the Department of Health and Human Services, and Martin S. Gaynor, a professor of economics and health policy at Carnegie Mellon University, two authors of the essay, spoke with HealthLeaders last week. The following is a lightly edited transcript.
HLM: When is consolidation in healthcare good?
Mostashari: Healthcare consolidation can be good when the integration leads to the larger organization taking on the work of truly integrated patient care experience.
In particular, as we are entering into this realm of moving from volume to value, when that larger organization uses those efficiencies that are often promised but rarely delivered to actually provide more value, whether it's for the taxpayer, the government, the employer or the individual.
Unfortunately, the evidence to date does not support a whole lot of that kind of good consolidation. On average those entities that have consolidated have increased prices, but not increased quality.
Gaynor: It's important to remember that consolidation is not integration. Consolidation is change of ownership. Integration is really working together and becoming a single organization working to one purpose in a coordinated way.
Simply buying another firm doesn't mean that that post-acquisition that the two entities actually become integrated and coordinated.
HLM: Is there an overarching reason that is pushing healthcare consolidation/integration?
Mostashari: There are payment policies in particular that are literally distorting the economics of healthcare such that they push small and independent practices into employment or other owned arrangements with consolidating health systems.
The shining example of this is when a private practice cardiologist is bought by a hospital so they can re-categorize it as a hospital outpatient department. All of a sudden, for the same service delivered by the same person in the same facility, Medicare and other payers following suit will pay two or three times for that echocardiogram as would have been done in a private practice office.
That is a distorting factor.
HLM: Is government policy the biggest driver of consolidation?
Mostashari: As a former regulator, I absolutely do not believe that there is a federal policy to encourage consolidation. The consolidation is an unintended consequence of some policies. And this is our whole point here.
Every policy needs to consider its implications on competition. To this point, we don't think that many well-intentioned, intelligent people who are addressing policy in their domain are not doing it with an eye toward its impact on competition, and they need to do so.
Gaynor: There is not a federal policy that is designed to promote consolidation. It's just that sometimes there are policies that are designed for a completely separate purpose that unintentionally have that result.
You don't need to consolidate to take risk-based payments. You don't need to consolidate to coordinate care. As a matter of fact, sometimes it can be done more efficiently by independent entities.
There is the possibility of virtual groups, where policy can facilitate independent practices to come together in a virtual way so that they don't have to consolidate under one ownership to take risks or comply with a certain requirement that is coming down from CMS or other payers.
HLM: Why do these administrative fiats become so burdensome?
Mostashari: One of the things I learned as national coordinator is that there are well-intentioned and dedicated policy makers for whom, through an accumulation of either wanting to be responsive to all constituents or trying to accomplish too much, every measure independently and individually is totally reasonable, but collectively when you put it all together it's insane.
When every regulator is thinking of their domain, they are not thinking about this in a more provider-centric way. Every different group that touches them has their own 'we're only asking for one or two little things. What's the big deal?' And it's not just the federal government, it's the private payers too.
In fact, a lot of the burden is on prior authorizations from private payers, it's from all the one thousand paper cuts that the practices are sustaining.
Gaynor: These burdens grow and grow and practices that would be perfectly efficient are no longer efficient because of these growing burdens, and that leads to consolidation, which then leads to less competition.
Nobody designed or planned or wanted that. But it happens. We're saying step back, take a look at that. You need to listen to people who are actually experiencing these things directly. We need better lines of communication and consideration of the holistic impact of these things, not one-by-one.
HLM: You call for the elimination of the Certificate of Need. Does that create problems, such as cherry picking?
Gaynor: There are no valid arguments. CON was established a long time ago, and we have a number of states that have repealed them. There is a lot of research evidence and it does not support the claims that CON constrains costs or reduce investments. It does not lead to more facilities located in "underserved areas."
CON is well-intended. Nobody designs these regulations thinking they are going to do something bad, but it just hasn't worked out. There is a long track record that shows CONs protect existing firms from competitions and it reifies so you don't get innovation and dynamism. If anything, it serves communities poorly.
HLM: What should state and federal regulators be asking when they examine consolidations among providers?
Gaynor: Will it harm competition? If the answer to that is 'no' then from an antitrust perspective, you don't have a problem. If it looks like there is the potential for harm then you look at the other side: Is there a potential for benefits and are the benefits substantial enough and would they be passed on to consumers so that they would overcome any harm that would flow from the merger?
HLM: Do we need another level of bureaucracy to ensure that these regulations are coordinated and not overly burdensome and counterproductive?
Mostashari: Definitely not! Every agency that cares about and relies upon the health of markets should increasingly consider the impact on competition with consolidation.
There is a formal review process for all regulations that involve the Office of Information and Regulatory Affairs that does fine work reviewing regulations and the burden on data collection, for example, or the regulatory impact.
I don't believe competition is specifically one of the regulatory impacts considered.
Gaynor: In a sense, we are just saying 'Hey, when you're formulating rules, regulations, and policies think about their impact on competition.' Just doing that can go an awful long way.
But also, there are plenty of opportunities for communication and consultation across federal agencies, between states and the federal government. And these things happen to a large extent already. What's required is for people to be thinking about these things. But I am not suggesting more bureaucracy.
HLM: Anything else you'd like to add?
Mostashari: The United States has determined that the way we are going to deliver healthcare is through markets. This is one of those issues that is truly embraced across the political spectrum, but we have had surprisingly few actionable policy recommendations around competition in healthcare.
Competition is not just the responsibility of the Federal Trade Commission. There are many actionable policy recommendations across federal, state and private sectors that can help improve the functioning of our healthcare system for everyone.
John Commins is the news editor for HealthLeaders.