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From Health Affairs:


Health Provider Consolidation – Market Opportunity or Failure?


Bethesda, MD — The clinical and economic virtues of health care provider consolidation have long been recognized by policy experts, but in recent years, research has shown that large provider organizations may use market power to obtain relatively high prices from payers without necessarily delivering superior quality. Four articles, being released as Web Firsts by Health Affairs, examine the issue from both sides.


The Ginsburg and Pawlson study serves as an issue overview. With continued consolidation likely, the article examines strategies that purchasers and payers can pursue to combat the rising prices that may result from growing provider leverage. "The success of the private- and public-sector initiatives," they conclude, "will determine whether governments shift from supporting competition to directly regulating payment rates."


Looking broadly at the drivers of competitive outcomes, the Sage study suggests that the health care system's long history of regulation has not only distorted prices but has also altered the nature of the products that the system buys and sells. Maintaining that "[t]he greatest obstacle to effective competition in health care is failure to understand the product," William Sage asserts that "[a] product is more than a series of process steps that can be billed for." He recommends that competition policy makers, including both antitrust enforcers and regulators, "force the health care industry to define and market products that can be assembled and warranted to consumers while keeping emerging sectors such as mhealth free from overregulation, wasteful subsidy, and appropriation by established … interests."


Two Viewpoints offer alternate perspectives on the Ginsburg/Pawlson and Sage proposals.


From Bruce Vladeck's perspective, these policy alternatives "are either impractical or counterproductive because they have their roots in classical economic models of an industry with pervasive market failure," including "the myth of the sovereign individual consumer." Once the public understands "what kind of health system we really want and how much we are prepared to pay for it … we need to invent or reconfigure the social institutions that we will have to have to get that system."


"US health care is in ferment," observes Martin Gaynor in his analysis. He says that the Federal Trade Commission and the Department of Justice work closely with other government agencies to maintain "antitrust enforcement and consumer protection in health care markets." Gaynor also suggests that some of the private initiatives suggested by Ginsburg and Pawlson may not be feasible if a particular market has become dominated by a single firm.


Seeking Lower Prices Where Providers Are Consolidated: An Examination Of Market And Policy Strategies
By Paul B. Ginsburg and L. Gregory Pawlson
Ginsburg is the Norman Topping/National Medical Enterprises Chair in Medicine and Public Policy at the Sol Price School of Public Policy and the Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California in Los Angeles; Pawlson is a senior medical consultant at the law firm Stevens and Lee in Lancaster, Pennsylvania.

Getting The Product Right: How Competition Policy Can Improve Health Care Markets
By William M. Sage
Sage is the James R. Dougherty Chair for Faculty Excellence, School of Law,
University of Texas at Austin.

VIEWPOINT Paradigm Lost: Provider Concentration And The Failure Of Market Theory
By Bruce C. Vladeck
Vladeck is a senior adviser at Nexera, Inc., a consulting and management
services company, in New York City.

VIEWPOINT Competition Policy In Health Care Markets: Navigating The Enforcement And Policy Maze
By Martin Gaynor
Gaynor is director of the Bureau of Economics, Federal Trade Commission,
in Washington, D.C., and a professor of economics and public policy
at the Heinz College, Carnegie Mellon University, in Pittsburgh, Pennsylvania.

The articles, which will also appear in the June issue of Health Affairs, are supported by The Commonwealth Fund.


NOTE: Health Affairs held a briefing about provider consolidation in health care on May 19 in Washington, D.C., which included presentations by the authors. A video recording will soon be available on Health Affairs' website.

About Health Affairs

Health Affairs is the leading journal at the intersection of health, health care, and policy. Published by Project HOPE, the peer-reviewed journal appears each month in print, with additional Web First papers published periodically at The full text of each Health Affairs Web First paper is available free of charge to all website visitors for a one-week period following posting, after which it switches to pay-per-view for nonsubscribers. Web First papers are supported in part by a grant from The Commonwealth Fund. You can also find the journal on Facebook and Twitter. Read daily perspectives on Health Affairs Blog. Download our podcasts, including monthly Narrative Matters essays, on iTunes. Tap into Health Affairs content with the new iPad app.