Market consolidation results in clout

How consolidation and integration plays out will determine if providers or payers have more influence on competition suggested experts at a conference last week sponsored by America’s Health Insurance Plans (AHIP).

[See also: Hospital consolidation rising]

While providers and payers have consolidated and integrated at a frantic pace, attempting to organize themselves for accountable care organizations (ACOs) and other innovative payment and delivery models, they don’t yet know how to re-engineer the delivery of care, said Paul Ginsburg, president of the Center for Studying Health System Change, and that leads to a “particularly chaotic” environment.

“What’s happening today is somewhat of a land grab,” Ginsburg said. “If a hospital hires all the physicians, then we know that bundled payments and ACOs will be hospital led. If, on the other hand, physician organizations develop, then we’re likely to have more of a physician-led delivery system.”

The difference is important.

“Physician-led ACOs make markets more competitive because they can shift patients to higher-value hospitals and have strong incentives to reduce admissions,” he said. “Hospitals won’t get that much out of shared savings unless they are operating at full capacity.”

If hospitals employ a large percentage of physicians, there will be fewer free-standing facilities competiting, Ginsburg noted.  

Whenever there is talk of consolidation, antitrust questions arise. The federal government has issued ACO antitrust guidance, including establishing safeguards to discourage collusion, but there are always issues around determining if the amount of consolidation that is proposed or happening is what is needed for legitimate purposes noted Mark Botti, partner at global legal firm Squire Sanders.

But there are still questions for which the answers are still unknown, he said, such as, “If ACOs get to the size that achieves their goals, will it also drive market power? Does the ACO become a competitive entity to attract patients to one group over another?”

As Charles Baker Jr., entrepreneur in residence at venture capital firm General Catalyst Partners, sees it, the consolidation and integration process will result in fewer players – big providers and payers – in a combination of fee-for-service approaches, and those fewer players will be “overseen by one really involved federal government.”