JAMA: Legislative action needed to improve healthcare competition

Dive Brief:

  • Writing in JAMA, several health policy experts proposed a package of reforms that could encourage competition in healthcare markets, prevent dominant players from engaging in anticompetitive practices and make the environment more appealing for new entrants.

  • A flurry of hospital mergers occurring since 2010 and a decline in independent physician practices has led to significant market concentration and decreased competition, according to Martin Gaynor, an economist at Carnegie Mellon University; Dr. Farzad Mostashari, founder and CEO of Aledade; and Paul Ginsburg, an economist at University of Southern California, the viewpoint's authors.

  • Most health policy experts agree competition is essential to improving quality, reducing cost and ensuring patient choice, but little legislative action has been taken to explicitly encourage competition in healthcare markets.

Dive Insight:

Mergers defended with arguments of increased efficiency and payment reforms intended to improve quality while reducing cost may be having an unintended effect of reducing competition in the industry, the authors wrote. 

"At a very basic level, the U.S. healthcare system is a market-based system," Gaynor told Healthcare Dive. "It's critical to have policies in place that enable, facilitate, support and promote competition so healthcare markets work as well as they possibly can."

The need for competition helps costs on all sides of the industry. For example, a recent MedPAC blog post noted hospital consolidation helped increase private payer rates. More than 550 hospital mergers have occurred since 2010 and physician employment at hospitals is on the rise, the authors note. A recent Health Affairs article found that provider consolidation was under way before the ACA was signed into law in 2010.

About a third of all physicians were employed by hospitals in 2013. These trends have led to healthcare markets that are not competitive enough to serve patients well by reducing costs, improving quality or delivering a better patient experience, Gaynor, Mostashari and Ginsburg wrote.

"Completely unintentionally, there have been payment policies adopted that have promoted consolidation among healthcare providers and physician practices in particular have been vulnerable to the effects of these policies because they tend to be smaller and don't necessarily have in place administrative structures" to handle such policies, Gaynor said. The viewpoint authors cite "facility fees" paid to hospitals for physician services in outpatient settings wherein now physician practices purchased by hospitals can receive higher rates from payers for such services. This policy naturally aligns with the prospect of provider consolidation.

While the federal government has begun to address differences in rates paid to hospital-based physicians and office-based physicians, higher rates generally paid to hospital-based physicians are driving trends in hospital employment and keeping costs high. Increased regulatory and administrative burdens are also driving physicians out of independent practice, the authors state.

Legislative action that more aggressively addresses discrepancies in reimbursement rates and that simplify reporting and data collection could reverse trends toward physician employment by hospitals. Revisiting provisions of the Stark Law and Anti-Kickback Statute could also help to expand value-based payment models while allowing physicians to remain independent.

Gaynor shares that under the Quality Payment Program, smaller groups can band together as virtual groups, for example.

If healthcare reform fights that have occurred over the past decade or so are any indication, health policy will rely on market-based approaches to achieving improvements. If the reliance on market-based approaches continues, the government could help with trying to shore up competition.

Gaynor notes there is an umbrella of sorts for what he deems as "competition policy for healthcare" where regulations should be made to protect patients but then allow the market to play out and react. "Don't be obtrusive. Let the market work while making sure patients are protected," Gaynor said.

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Filed Under: Health Law Policy & Regulation