That view was eventually embraced by the Obama administration as it pushed healthcare reform legislation. The 2010 Patient Protection and Affordable Care Act encouraged accountable care and bundled payments, both of which were designed to reduce the volume of services.
And whether it was the law, the economy, employer pressure or the rise of high-deductible health plans, which encourage healthcare consumers to become price-sensitive shoppers, volumes have come down. Hospital admissions are falling, and there's scant evidence of a surge in demand triggered by expanding insurance coverage.
Even though the law's architects consciously avoided price controls, prices have moderated, too, which you would expect when there is a decline in demand for services. Economists at the Council of Economic Advisers noted in a blog post last week that prices for healthcare goods and services grew just 0.9% in the past year, “the slowest rate of increase in the last 50 years.”
That's not what you'd expect under traditional economic theory given what's going on among healthcare providers. Hospitals are undergoing the greatest consolidation wave in history. Large hospital systems are gobbling up physician practices and acquiring insurers. Some insurers are acquiring hospital systems.
In theory, it's an environment ripe for collusion and imposition of market power-driven price increases on consumers, insurers and employers, who can be taken for a ride by dominant insurers blithely passing along price increases. In theory, excessive market power also squelches innovation and makes it difficult for new entrants to enter the market.
Yet there's no evidence any of that is taking place. In fact, healthcare delivery appears to be at the dawn of new era of innovation that's helping drive down both volume and prices.
Consolidation is enabling telehealth, population health management and greater care coordination that reduces or eliminates duplicative or unnecessary demand for services. Consolidated systems have been powerless to prevent new entrants like pharmacies and storefront clinics from offering routine services—a new form of competition for traditional providers.
Antitrust enforcement, because of its enabling statutes, tends to focus exclusively on market power. As a result, virtually all of the cases brought by the Federal Trade Commission in the past decade have been in small and medium-sized markets such as Boise, Idaho, or Toledo, Ohio, where consolidation removed one of just two or three providers in the market. Those cases provide scant guidance for national policy.
In a Health Affairs article last month, Martin Gaynor, director of the Bureau of Economics at the FTC, noted that federal agencies are collaborating to ensure the new accountable care organizations aren't used as a cover for imposing monopolistic pricing. He raised legitimate concerns about the return of “any willing provider” regulations, which would undermine the rise of narrow networks that are providing lower-priced insurance alternatives, and called for removal of antiquated certificate-of-need laws that prevent competitive startups.
But ensuring meaningful competition in a consolidated world needs to go much farther—and will probably require congressional action. Consumers, insurers, group purchasers and providers need transparent information. The future of meaningful healthcare competition lies in ensuring full transparency on pricing, quality and outcomes so that all participants in the healthcare marketplace have the information they need to make informed choices.
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