A basic principal of market-based economic systems is that competition drives value. But the surge in mergers and acquisitions within the health care industry is causing a drastic reduction in competition among entities such as insurance companies, hospitals, physicians’ practices and even suppliers of services such as dialysis.
“In order for markets to work, you need many small buyers and sellers. What we’re actually seeing is consolidation,” said Leemore Dafny, professor of management and strategy and the Herman Smith Research Professor in Hospital and Health Services at Kellogg School of Management at Northwestern University in Chicago. Dafny delivered the 14th annual Marshall J. Seidman Lecture on the costs of health care consolidation.
Health care joint ventures, partnerships, mergers and acquisitions are front-page news around the country, including here in Boston, where a proposed acquisition of three community hospitals by Partner’s HealthCare has been postponed until November by a recent court order.
Dafny was one of 21 national anti-trust experts and health economists to sign a report calling on a Massachusetts judge to block Partner’s planned takeovers of South Shore Hospital and the two hospitals that make up the Hallmark Health System, based on her studies of competitive interactions among payers and providers of health care services and the intersection of industry and public policy.
In 2012-2013, Dafny served as Deputy Director for Healthcare and Antitrust in the Bureau of Economics at the Federal Trade Commission in Washington, D.C., where she oversaw investigations into anti-competitive practices in the industry.
Mergers can create value, from economies of scale or the convergence in a single system or network of providers with a multitude of sub-specialists covering diverse patient needs. But they can gain market share or revenue through anti-competitive practices like price-fixing, Dafny said.
Studies of hospitals, physicians groups, dialysis providers and health insurance mergers have shown that it is often the latter. Price and overall spending tends to increase, while quality in hospital and outpatient care show no increase, or even slight decreases, she said.
Dafny called on researchers and industry leaders to study the interactions between consolidations, benefit design and care delivery as a key aspect of efforts to create financially sustainable, high-value and high-quality health care systems and noted the need for innovative systems that promote integration without consolidation. The goal should be improved quality without the anticompetitive practices.
Should we have large-volume, discount-price providers for most things—like a Walmart for health—and boutique specialists for more complicated cases?
“Ideally, we would like the market to decide,” Dafny said. “The problem is, we’re going to need better shoppers.”
In 2000, on the occasion of his 50th reunion from Harvard Law School, Marshall J. Seidman provided endowment support to the Harvard Medical School Department of Health Care Policy to support research related to health care costs and quality and to host an annual meeting by a leading policy maker on issues related to costs and quality of health care with a particular emphasis on activities that are most likely to impact on federal and state approaches to these problems. The department has sponsored the lectures yearly since 2001.
