Fears of health monopoly as Congress urges collaboration

Integrated care could mean higher prices

THE BOTTOM LINE 'We’re paying a huge price in the inefficiency and variance of care,' said Dr. James Mongan, president of Partners. THE BOTTOM LINE
"We’re paying a huge price in the inefficiency and variance of care," said Dr. James Mongan, president of Partners.
By Lisa Wangsness
Globe Staff / October 25, 2009

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WASHINGTON - The health care overhaul proposals before Congress encourage hospitals and doctors to join forces and create networks that would do a better job of coordinating patient care. But large provider groups also carry a risk: They can use their market strength to raise prices and reap higher profits.

President Obama and Democratic leaders have held up integrated care systems like the Mayo Clinic in Minnesota as models for providing more efficient care. Most health policy specialists say such systems have vast potential to improve safety and quality and reduce costs by using linked computers and standardized treatments.

But some health economists warn that integrated care doesn’t guarantee lower prices. Partners HealthCare, which includes Massachusetts General Hospital and Brigham and Women’s Hospital as well as a 4,000-physician network of community affiliates, has been accused of using its enormous clout to dictate prices and marginalize competitors. A 2006 Robert Wood Johnson Foundation study found that a wave of hospital mergers in the 1990s led to price increases of 5 to 40 percent, and warned an impending second wave could leave many cities with a monopoly hospital system.

Robert Town, a health economist at the University of Minnesota who co-authored the study, said once a provider group becomes indispensable in a community, it can force insurers to pay more - as many have already done.

“There is a lot in this legislation to encourage consolidation, which I think is kind of disastrous,’’ he said, pointing to experimental programs to create more organized care, and to devise new payment methods emphasizing quality over quantity.

William Vogt, an economist with the RAND Corporation and co-author of the study, said the government must tread carefully. “If the government encourages providers to get together and cooperate, you are running a real risk that collusive agreements could come out of it.’’

Many proponents of integrated care think the benefits of better communication, shared test results, and ensuring the most up-to-date science is at doctors’ fingertips far outweigh the risks of creating monopolies. Modern medicine, they argue, cannot be practiced effectively in such a disorganized fashion as it often is today.

“We’re paying a huge price in the inefficiency and variance of care,’’ said Dr. James Mongan, CEO of Partners and co-author of a new book on the benefits of integrated care, “Chaos and Organization in Health Care.’’ He said Partners is not an example of a dangerously influential provider, noting that health costs in Boston have not increased faster than nationally. But Mongan acknowledged competition among providers is important to controlling costs. In areas of the country that cannot sustain competing provider networks, he said, the government may eventually consider regulating doctor payment rates.

“The basic question that still remains to be answered is, if you do succeed in building a world where we really have better organized accountable care organizations, are you able to structure them so you have true competition? Or are you going to have to link that with a Medicare-type of payment setting?’’ he said.

One way lawmakers could counter the market strength of monopoly providers might be to create a strong government-backed insurance option that could set payment rates - a remedy Democrats have framed as a method for forcing insurers to compete. A more radical approach might be for the government to set universal rates, as many other industrialized countries do. Neither approach is likely to survive politically.

Others favor changing the way doctors are paid so they have a stake in keeping costs low and quality up - the Senate Finance Committee’s bill would gradually nudge Medicare in this direction.

Lately Democrats have been more interested in curbing the influence of outsize insurers, which they blame for driving premiums through the roof. Indeed, an American Medical Association report found that just one or two insurers dominated 94 percent of metropolitan areas surveyed last year.

But economists say big insurers can be an important counterweight against powerful hospitals and clinics. The more members insurers have, the more likely they can get a good deal when they negotiate on prices.

“It sounds horrible in America - we hate to hear less competition is good, but it’s all relative,’’ said Austin Frakt, an economist at the US Department of Veterans Affairs in Boston.

Even in areas where one or two insurers dominate the marketplace, influential providers have become skilled at winning concessions from them. Last year Blue Cross & Blue Shield of Rhode Island resisted what it claimed was a demand for a 30 percent rate increase from Care New England Health System, which had the only neonatal intensive care unit in the state. Not long after Care New England sent letters to patients warning that coverage may be affected, the parties came to a quick resolution.

Christopher Koller, the Rhode Island health insurance commissioner, said: “If you have insurers and providers of roughly equal market strengths, providers generally have more leverage than insurers, because they have a greater capacity to appeal to public sympathy.’’

The Federal Trade Commission is supposed to block anticompetitive provider mergers. But during the Bush years, federal regulators were often reluctant to step in.

“We’re just coming out of a period where the message was very clear that the federal administration in every field, not just in health care, was not committed to antitrust enforcement,’’ said James Roosevelt, president of Tufts Health Plan.

Even in cases where regulators have tried to prevent provider monopolies from forming, though, judges have sided with the providers in many recent regulatory cases.

Town said that by talking up integrated systems like Mayo, Democrats may already be emboldening providers. In a case he is working on with the FTC, he said, when regulators raised a red flag about a clinic merger, “The folks in the health care organization made the argument, ‘Why are you stopping us? This is what the Obama administration wants us to do.’ ’’

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