Competition and costs of health care

Here is CNN special report by Professor Amitai Etzioni explaining why strategies to control rising healthcare spending are not likely to be constrained by plans based on competition.

http://www.cnn.com/2011/12/27/opinion/etzioni-health-care-competition/index.html?hpt=hp_c2

For all the reasons he cites, patients are not in a position to constrain healthcare spending. And even if they/we could, we would likely engage in cutting back on preventive care, driving up costs in the long term. It seems to me that every good policy initiative intended to save money has been turned in a way that contributes to continuing increases in costs. The reality is a very complex network of incentives. Whatever new policy is initiated, people are going to find ways to exploit the new system in unintended ways. Here in Albany, Georgia our largest hospital system has just acquired the other local hospital despite concerns by the Department of Justice and others that the acquisition will reduce competition and lead to higher costs. I suppose one approach to creating an Accountable Care Organization is to own all the necessary parts of one. I can imagine that the recent Patient Protection and Affirdable Care Act may encourage hospital system administrators to buy up their competitors to avoid the legal and other challenges of participating in the creation of an ACO.

What is the role of competition within an ACO?

I am reading the last chapter of the book Accountable Care Organizations: Your Guide to Strategy, Design, and Implementation by Marc Bard and Mike Nugent. It is well worth the time and thought to read. It appears to me that if they work, ACOs are more likely to be successful in large urban areas where there are large populations of people and large numbers of hospitals and physician groups. The idea is to scale up "production" by designing efficient and effective care pathways. In an urban setting multiple ACOs can exist and as a result there can be a constructive combination of efficiencies within ACO networks and constructive competition among multiple ACO networks. Hospitals and physician groups can "shop around" and even participate in multiple ACOs within a large urban market.

But it is not apparent to me that this is going to work well in smaller markets that lack enough population base to support multiple ACOs. If there is only one existing local hospital and no large physician groups then it appears that there is only one potential "game in town." The challenge there will be the usual one of trying to align the interests of physicians with the interests of the hospital, given shrinking revenue from government payers. But what about the situation in which there are two or three local hospitals in a city and they have a long history of unhealthy forms of competition including frequent law suits? To create an ACO governance body composed of people with long-standing local institutional loyalties is going to be difficult. I am concerned that Medicare beneficiaries and others in such places may lack adequate care because in the absence of an ACO local institutions will not have adequate financial resources to provide quality care. If long-term competitors cannot get past their issues and competitive interests they may be unable to form an ACO in small to midsize places.

Just as Certificate-of-Need legislation led to accelerated spending for costly medical technologies in the 1970s it will not be surprising if the Patient Protection and Affordable Care Act will lead to many attempts by local hospitals to buy out other local hospitals and local physician practices. Coordination that may not be otherwise possible is possible under unified ownership. But there are still laws on the books that prevent some acquisitions and that make it illegal for the very entities that should be talking about forming ACOs from discussing financial matters because such conversations would be anti-competitive. What it boils down to is, do we believe in competition or do we believe in networks based upon cooperation, coordination and trust. It seems as if we want hospitals to compete with each other while at the same time being partners within ACO structures. How can the people who govern an ACO also fulfill their responsibilities to individual institutions engaged in competition with ACO partners?

One of the things that Bard and Nugent advocate for is tightly coupled systems. Can a system be both tightly coupled and internally competitive? Is it reasonble to insist on what amounts to consolidation of institutions while at the same time forbidding hospitals and others from engaging in behaviors that are illegal because they threaten competition?

For-profit hospital bought by non-profit hospital in SW Georgia

The big medical news story in Southwest Georgia this Christmas season is that Phobe Putney hospital has bought out Palmyra Medical Center after years of coexistence in Albany, Georgia. I moved here recently and my experiences as a patient with Phobe Putney hospital and its employees have been good. I have no experiences with Palmyra Medical Center to be a basis of comparison, as a patient or otherwise. I am sure there must be a history of issues involving the two hospitals and local citizens that I do not know.

http://www.mysouthwestga.com/news/story.aspx?id=557610
http://www.mysouthwestga.com/news/story.aspx?id=559057

From what I see in the local media the reactions of local citizens to the news have not been positive. The common theme is that having two local hospitals produces competition which is good. That strikes me as, 1) not reflecting an understanding that competition is not the same in healthcare as in other industries, and 2) a cover for other sentiments that people may be unable or unwilling to fully express.

For what they may be worth, let me offer two thoughts. One, competition does not necessarily require the presence of two large general-service hospitals. Hospitals today increasingly are in competition with smaller, more-specialized entities. Two, the fact that there have been multiple litigations between Phoebe and Palmyra over the years means that a lot of money that could have been spent providing healthcare services has been spent for legal services. That kind of competition is costly.