Does Market Power Help Patients?

LevyRob Weisman and Liz Kowalczyk report in today’s Boston Globe that the US Justice Department is investigating possible antitrust violations against Partners Healthcare System, the dominant hospital and physician provider group in Massachusetts.

The letter, obtained by the Globe, said the probe sought to determine whether the practices violated the Sherman Antitrust Act, which bars companies from using their market power to limit trade or artificially raise prices.

Since the Attorney General has already reported that rates collected by PHS are clearly higher than most others in the market, I imagine the case will rise or fall on the following proposition: Is the market power of this system necessary to produce an integration of care that brings clinical advantages to the public served by it? You could test this the following way: If you look at the actual data, is the safety and quality of care offered by PHS significantly different (in a positive way) from other academic medical centers, community hospitals, and physician groups in the state?

Note that I include all three components of the provider network. If a Partners GI doctor in the suburbs doing colonoscopies secures higher rates than his non-Partners colleague down the street — solely because of his affiliation — can you document that his care is better? If a patient goes to Newton Wellesley Hospital or North Shore Hospital, where the hospital and the doctors are both paid more than other community hospitals, can you document that their care is better? Ditto, of course, for the care given at the academic centers downtown.

Put it another way. Does the absence of such data — given the paucity of transparency about clinical outcomes — create a prima facie case that there is no demonstrable clinical benefit from Partners’ market power and its resultant higher prices? Perhaps the answer depends on who has the burden of proof in anti-trust cases. Does the government have to prove that there is no demonstrable clinical advantage, or does Partners have prove that there is?

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14 replies »

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  2. rbar mentioned what I wanted to say. It’s very difficult to implement well intended objectives such as outcome based payment if patient is detached from the process or help them realize market power.
    But, why is the patient detached?
    Being healthy is such priority for all, so why don’t we focus as much as we would in, say, getting a best quality TV for lowest price?
    Doctors understand patients best. I hope they can answer.

  3. I notice that most seem to assume that consumers will make rational decisions – i.e. go to the provider/system with the best outcome and/or best price.
    I am not sure that this is the case. I have heard about empirical studies linking unrelated matters (parkings spots and other conveniences) to patient satisfaction/preference, and most importantly, you have to be blind not to notice all this direct to consumer advertising of drugs (that may be equal or inferior to generics), scanning facilities, robotic surgery …
    I think we are on the wrong track with regards to our health care values.

  4. Barry, as usual, you bring forward good ideas.
    Regarding your second point, if I recall correctly, some of the contracts that PHS has with insurers actually forbid the insurer from offering tiered plans. If the insurer wants access to PHS, the insurer cannot charge the patient a higher copay/deductible for PHS than it does for other providers.
    These types of contracts should be outlawed by the state legislature. For price transparency to work, the insurer must be able to reflect the relative cost of the medical provider into the payment structure that the patient sees.

  5. I think it’s quite probable that there is little or no correlation between the reimbursement rates various hospitals and doctors receive and the quality of the care they provide. At the same time, whether patients realize this or not, they suffer no personal adverse financial consequences if they choose one of the more expensive providers as long as the provider is in the insurer’s network.
    Policymakers and regulators would serve us better, I think, if they helped to create some countervailing power against providers who command high rates only because they have amassed significant regional or local market power. To do this, there are at least three actions that would be helpful. First, they could require public disclosure of contract reimbursement rates so referring doctors will be able to steer their patients toward the most cost-effective providers. Second, they could encourage insurers to offer more limited network products and/or products that group hospitals and doctors into tiers based on cost and quality. The patient would be responsible for a significantly higher co-pay if he/she chooses to go to a high cost provider for care that is not delivered under emergency conditions. Third, they could outlaw all or none contracting so insurers would not have to contract with every hospital in a large group in order to have access to the few that it wants its members to have access to.
    If information about the low correlation between cost and quality is widely disseminated, limited network and/or tiered insurance products that cost 20%-30% less than traditional broad network plans should start to gain traction from both employers and employees in the group market as well as from those who buy their health insurance in the individual market or through the Connector.

  6. The only way market power may help patients is when a large payor has so many beneficiaries that a provider must accept lower payment to have any of those patients. The patient therefore may see a higher quality physician than they would otherwise get. The backlash comes when the payor cuts too deep and the providers stop participating. This creates a shortage of available providers, and wait times and quality do the expected. The patient is never really a primary negotiator, just a pawn.

  7. Health insureres are exempt from the federal antitrust laws. States have not shown much concern about the monopoly power exercised by many health insurers in many states. The FTC has given a few positive signals to physicians who clincally integrate that their joint negotiating will not be challenged (see GRIPA advisory opinion). However, health insurers are still free to disaggregate clinically integrated physician groups and “divide and conquer” them to drive down prices by refusing to contract with such groups, even though these groups may have made substantive investments in healthcare IT and quality improvement, which benefit insurers. The FTC should permit physicians in such groups to choose to contract exclusively via their truly clinically integrated joint ventures to be able to resist the monopoly power of health insurers and thwart the “free riding” that the health insurers have achieved by their failure to adequately share in the costs of investments in healthcare IT and quality improvement.

  8. “Does Market Power Help Patients?”
    Good question, but practically unanswerable given the lack of outcomes data at a sufficiently granular or systemic level. Safe to say the small practices will lack the resources (capital, time, expertise) to invest in the designs (process, technology, information, human factors) to achieve better outcomes than those that do. It doesn’t mean that one needs to build a Partners to be the best. Only that there is sufficient scale to invest in improving itself substantially.
    There are so many things to be done, but please allow the one idea that we need to find better ways to measure outcomes and make them comparable etc. It can’t be done all at once, but we need to continue to evolve it and get better and better.
    As for the topic of an over concentrated market…of course…and anybody close to negotiating the variety of contracts in a community will tell you: of course, size=pricing power. Its about time we looked beyond legislative remedies and explored the judicial approach to moving this forward.
    In the end there should be robust competition at all levels of care: competition for quality, cost, outcomes, etc…can’t compete if you can’t measure.

  9. Margalit, very well stated.
    I’ll extend my first comment a bit further.
    If there is an economist in the house (or on the planet) that buys the headline of this post: “Does Market Power Help Patients?”, would you please step forward and explain?

  10. Historically, market power helps the seller realize more profit. I have not seen any studies showing that monopolies are conducive to better product quality, or decline in prices. Quite the opposite.
    The assumption that something needs to be big in order to be efficient is based on economies of scale. Economies of scale usually translate into higher profits in the absence of fair competition.
    I am absolutely not convinced that consolidation and integration in health care will create either better quality or lower costs. The argument against fragmentation is not, or should not be, an argument against the small business model. It should be an argument in favor of better communications and nothing more.

  11. Paul,
    I think you raise a very valid question by asking “is the market power of this system necessary to produce an integration of care that brings clinical advantages to the public served by it.” With the state and the federal government encouraging delivery systems to test innovations such as ACOs, one would assume that greater integration of care would be necessary. How can a system reasonability be expected to delivery care across a continuum, with investments in IT and care coordination without integration. On the one hand fragmentation is a serious problem but on the other hand integration, solely for the purposes of financial leverage is also a problem.
    Where do you think we should start to address this problem in the Commonwealth? Payment reform (i.e. episode of care payments), ACOs?

  12. Paul,
    The national Dartmouth Atlas data suggests that there is minimal correlation (if any) between care provider quality and price.
    You, however, infer there is a correlation between market power (i.e., higher prices) and quality in Partner’s case based on an n of 1. I don’t think any court will buy that.

  13. This kind of reminds me of the Goldman scenario – given the narrow legal definitions of the Sherman act and of fraud or whatever at Goldman, the government may or may not successfully prove its cases. However, in terms of the intent of both companies – to make $$ in any amoral way possible (review the reported details of Partner’s BCBS contract and you’ll get the amoral part) and hang the consequences – I think the answer is already clear.