Economists’ Opinions Differ on Impact of Hospital Competition

Valley News Staff Writer
Sunday, September 11, 2016

Lebanon — Deciding whether hospital mergers, affiliations and other forms of cooperation are desirable is not an easy proposition — even for experts.

“On the one hand, there is concern about consolidation leading to greater market power and higher prices for consumers,” said Elliott Fisher, the director of the Dartmouth Institute for Health Policy and Clinical Practice, a research center affiliated with Dartmouth College.

But there’s a flip side. “To the extent that clinical integration is being done to improve care for patients, and thereby lower the actual cost of taking care of them, that’s a great thing,” Fisher said.

That leaves antitrust regulators with a tough job on their hands, according to Leemore Dafny, a Harvard Business School professor. Economists must “comb through reams of claims data, using complex statistical methods” to weigh the benefits and costs of a proposed merger, Dafny wrote in a 2014 article in the New England Journal of Medicine.

Some economists argue that competition does more harm than good. It can lard medical bills with extra costs for advertising and duplicative facilities and services and trigger an expensive “ ‘arms race’ for technology,” consultant Susan Palmer Terry wrote in a 2012 report to the New Hampshire Insurance Department. “Competitive actions may actually increase hospital costs,” she warned.

Fisher reads the numbers differently: “The data is pretty clear that in more competitive markets hospitals are able to keep their costs lower and prices lower.”

Without competition, hospitals may overlook opportunities to reduce costs and hold down prices, he said: “Hospitals that choose to raise their prices are making a conscious choice.”

Dafny characterized competition as the “bedrock of the U.S. vision for healthcare” in an October slide presentation to the Massachusetts Health Policy Commission. “For markets to achieve efficient outcomes, we need robust competition in all key health care sectors,” one of her slides said.

A recent study found that a series of hospital mergers in the 1990s “led to substantial price increases with little or no countervailing benefit,” Dafny wrote in 2014. More recently, she added, the Affordable Care Act triggered a merger wave among hospitals “scrambling to shore up their market positions, improve operational efficiency, and create organizations capable of managing population health.”

James Weinstein, the chief executive at Dartmouth-Hitchcock, said that financial integration made possible by affiliation can “create legal structures ... so that you can move money around to manage the population most effectively” in a region, he said. “Otherwise, there’s not a lot of reasons” to affiliate, he said.

Peter Wright, the chief executive at Valley Regional Hospital in Claremont, said that affiliation can also help promote strategic planning. “As affiliates, your boards and managers can sit down and say, ‘What strategy do we want to use to work collectively to work in the region?’ ” he said.

For competitors, such a discussion might amount to illegal collusion, according to Wright. “So as a non-affiliate there’s a barrier to certain strategy sessions.”

Wright added that hospitals that grew up in a different era don’t necessarily represent an efficient allocation of resources today: “If all seven hospitals in the Upper Valley were all one system driving in one direction we could probably move that needle further in creating a better health care system and better outcomes for the populations that we serve in this area.”

Primary care needs to be available in communities, but some medical specialties could be centralized, Wright said. “When you’re a system together and there’s one checkbook, then you’re looking out for the aggregate good, not the good of one individual hospital,” he said. “When you start looking at that aggregate, you can start to marshal resources and say, ‘How many cancer programs? How many orthopedic programs? How many urologic programs? What is OK to drive (to) and what do we absolutely have to provide locally?’ ”

But hospital mergers don’t always deliver the promised savings, according to Kevin Pflum, a health care economist with Bates White Economic Consulting in Arlington, Va. “The efficiencies that they have to get don’t often materialize,” he said. “You are taking a complex system and making it even more complex.”

“Competition between hospitals and health systems is beneficial for everybody,” said “Competition does drive down prices.”

Except, of course, when it doesn’t.