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One of the great questions today is what does competition actually look like in the health care world?
You could imagine a world in which insurers compete aggressively with each other to offer the lowest premiums (i.e., if most of the population was buying through exchanges like those created by the ACA) and thus benefit greatly for using their bargaining power to keep health care provider prices down, as well as using cost-sharing and smart product designs to steer their customers toward the most cost-effective care providers.
Or instead of activist insurers you could imagine a world of passive insurers in which every insurer pays the same prices to the same health care provider (all-payer rates) and exposes their customers to as much of those relative prices as they can. Instead of a world of insurers competing aggressively and perhaps getting lower provider prices as a byproduct, this would be a world of providers aggressively competing with each other and patient-consumers voting with their feet and wallets when they choose a doctor or hospital.
A third option would be a world in which you don't quite have aggressive insurer competition or aggressive provider competition per se, but one in which providers eat the insurers, forming super-systems that combine the two. A given market might have just two such super-systems competing against each other. Then you buy the insurance product owned by the provider system you want access to and that's their incentive to keep your premium and their total expenses down.
Eastern Massachusetts is right now grappling with the question of whether that third option is a good idea. The region already has a dominant provider system that owns its own health insurer, and now a would-be rival is waiting in the wings if a pending super-merger is approved. The problem is that super-systems don't eat all the insurers and so they have the incentive and means to negotiate much higher prices with those health insurers they don't directly own.
Beth Israel-Lahey merger could raise healthcare spending
The best case scenario if the merger were to go through is that these newly merged hospitals retain their lower cost structure and lower prices and steal customers away from the higher-priced existing market leader, perhaps even prompting the latter to lower its prices. The worst case scenario is that it mirrors the actions of its adversary and uses its new market clout to drive up its heretofore lower prices. Quite the gamble the regulators are facing.
You could imagine a world in which insurers compete aggressively with each other to offer the lowest premiums (i.e., if most of the population was buying through exchanges like those created by the ACA) and thus benefit greatly for using their bargaining power to keep health care provider prices down, as well as using cost-sharing and smart product designs to steer their customers toward the most cost-effective care providers.
Or instead of activist insurers you could imagine a world of passive insurers in which every insurer pays the same prices to the same health care provider (all-payer rates) and exposes their customers to as much of those relative prices as they can. Instead of a world of insurers competing aggressively and perhaps getting lower provider prices as a byproduct, this would be a world of providers aggressively competing with each other and patient-consumers voting with their feet and wallets when they choose a doctor or hospital.
A third option would be a world in which you don't quite have aggressive insurer competition or aggressive provider competition per se, but one in which providers eat the insurers, forming super-systems that combine the two. A given market might have just two such super-systems competing against each other. Then you buy the insurance product owned by the provider system you want access to and that's their incentive to keep your premium and their total expenses down.
Eastern Massachusetts is right now grappling with the question of whether that third option is a good idea. The region already has a dominant provider system that owns its own health insurer, and now a would-be rival is waiting in the wings if a pending super-merger is approved. The problem is that super-systems don't eat all the insurers and so they have the incentive and means to negotiate much higher prices with those health insurers they don't directly own.
Beth Israel-Lahey merger could raise healthcare spending
Massachusetts healthcare spending would increase by up to $251 million per year if regulators approve the planned merger between Beth Israel Deaconess Medical Center, Lahey Health and several other hospital systems to create the second-largest healthcare network in the state, according to a preliminary report from the Massachusetts Health Policy Commission.
The combination would put the new system behind Partners HealthCare and its nearly $14 billion in total revenue in 2017. The combined entity would have a network of 10 hospitals, the largest in the state. It would also have three affiliate hospitals in Cambridge Health Alliance, Lawrence General Hospital and Metrowest Medical Center and more than 4,000 physicians.
The Beth Israel-Lahey merger would increase its bargaining leverage with commercial payers and potentially allow it to boost prices around 5% to 10%, increasing spending by an estimated $138.3 million to $191.3 million annually for inpatient, outpatient and adult primary care services. Specialty physician services spending could increase by an additional $29.8 million to $59.7 million. These conservative price hike estimates modeled after insurers' willingness to pay higher prices would still result in lower prices than Partners, the commission found.
The discussion illustrates the power struggle between Partners HealthCare, the largest health system in the state, and other providers in Massachusetts trying to capture more market share. On one hand, the Beth Israel and Lahey combination could lower Partners' prices if it broadens the payer network that Partners is in. A more competitive network could ultimately lower spending.
But even if Beth Israel and Lahey are able to save money by shifting care from high-cost providers, expanding its patient base, better coordinating patient data and sharing best practices, and combining purchasing and administrative services, among other purported efficiencies, that would not offset the projected higher prices it could garner from more market share, the commission said.
This conversation is taking place throughout the country as providers grow.
The best case scenario if the merger were to go through is that these newly merged hospitals retain their lower cost structure and lower prices and steal customers away from the higher-priced existing market leader, perhaps even prompting the latter to lower its prices. The worst case scenario is that it mirrors the actions of its adversary and uses its new market clout to drive up its heretofore lower prices. Quite the gamble the regulators are facing.
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