Cory S. Capps, Phd., an economist at Bates White Economic Consulting and published expert on the implications of health care consolidation, will be the keynote speaker at the Quality Institute’s Winter Conference on November 2nd. He spoke to Symptoms & Cures in advance of his talk.
You have studied health care mergers for many years and have been called as an expert in federal court cases. Are we creating health care teams that promote integration? Or are we creating monopolies that eventually will cost consumers?
My first answer: that depends. My second answer: it can be both. The deeper question is: on what do the outcomes depend? We know there are examples of tightly integrated and large organizations that perform well on both quality and cost. We can point to Geisinger Health System and Kaiser Permanente. That’s one category. Economists also have a pretty good understanding that mergers of closely competing providers — when there are few other competitors — can result in market power and high prices. That’s the other category.
One important role of competition is to sort out more and less effective business and care models. Right now, we have a diversity of organizations — provider-led systems, hospital-led systems, vertically integrated systems, systems with and without insurance offerings, and so on — that are trying to find ways to improve value through better technology, coordination and collaboration. Some feature common ownership, but many do not. There’s no consensus on which structure is more effective at increasing value, but competition is important to sorting out the more and less effective, which will further the Triple Aim.
The implications of consolidation in health care can be far-reaching, affecting quality, cost and access. Let’s start with the implications on pricing. Does it go up or down?
We, and by we I mean the collective body of health economists, have done research that has determined that specific types of mergers are likely to increase pricing power. We see that when there are mergers of close rivals in a relatively small geographic area, such as a city or county, and when there is also a shortage of other competitors. The second thing we know, based on more recent research, is that vertical integration — common ownership of different parts of the healthcare value chain — does not have widespread statistically significant economic benefits. There are examples of effective vertical integration but efficiency is not something we should presume.
What about the implications for quality?
The quality implications of vertical integration have not been as well studied as price implications. We do know that in horizontal mergers — specifically mergers of close rivals that lessen competition — quality implications are neutral to a reduction in quality, according to empirical studies. When there is less competition, the penalty for low quality declines. On the vertical front, such as hospitals buying physician practices, there is not good evidence showing better or worse patient outcomes. Perhaps that facilitates better coordination, or perhaps when a physician practice bases more of its referrals on its hospital alignment, as opposed to patient considerations, then you get a diminution of quality.
We’ve heard hospital executives say that the recent mergers are being driven by Medicare innovations and the push for value-based care. What do you think?
Yes, it is true that hospital executives are saying that. Whether that is actually what’s driving consolidation is pretty unclear to me. I am skeptical. I have been looking at this for 25 years and I have seen that consolidation comes in waves. Waves have been ascribed to the advent of prospective payments, HMO penetration, and other changes, like the Balanced Budget Act. A lot of people are attributing recent mergers to the ACA. There always is something to point toward. You can certainly have coordinated care as envisioned by the ACA without having a near-monopoly provider system. I do want to say that I have seen mergers that have saved lives, such as when a failing hospital providing low quality is purchased by a competitor. Consolidation can also save some costs on the back end, though it can also create costs.
What is your advice for policy makers and stakeholders in New Jersey?
States have important roles. First, states can cooperate with the federal government on anti-trust investigations. And there is a lot of low-hanging fruit in the purview of state legislators. They should be careful about putting restrictions on scope of practice for non-physicians. For instance, should non-dentists be allowed to provide teeth whitening? Advanced practice nurses are another example. Scope-of-practice restrictions are likely to decrease competition. Similarly, certificates of need can make it harder for rivals to add service lines that compete. Legislators should be cautious about legislation to tighten network adequacy rules — some evidence shows that narrow and tiered networks can save money without reducing quality.
One general point to keep in mind: there’s a mindset in certain quarters that competition does not work in the world of health care, but that outlook is just not supported by the data.