Tuesday, May 20, 2014

What's striking about the Mass. AG's deal with Partners Healthcare System is what it does not do.  Although it puts some restrictions on the organization, it leaves in place a colossus with a common bottom line that can shift costs among its component parts.  And, the actual restrictions will not make any appreciable difference in the pricing differential for this system relative to others.

As noted on WBUR's Commonhealth blog:

If Partners prices rise 2 percent a year, and prices for similar Boston hospitals go up 3.6 percent, the gaps narrow, Boros says.

“Specifically, our 2012 data shows that Brigham and Women’s prices are 24 to 33 percent higher than Beth Israel Deaconess Medical Center and 26 to 59 percent higher than Tufts Medical Center. After six years, these gaps close to 13 to 21 percent higher for BIDMC and 15 to 45 percent higher for Tufts,” Boros said.

What was the alternative to this give-away?  Well, a similar set of circumstances arose in the United Kingdom, where one set of privately owned hospitals was found to have had excessive market power in the central London area. Last month, the government regulator, the Competition and Markets Authority, decided that the remedy should include divestiture of assets of HCA hospitals:

The CMA has found that many private hospitals face little competition in local areas across the UK and that there are high barriers to entry. This leads to higher prices for self-pay patients in many local areas – and for both self-pay and insured patients in central London, where HCA, which owns over half of the available overnight bed capacity, charges significantly higher prices to insured patients than its closest competitor.

The CMA will also require HCA to sell the London Bridge and Princess Grace hospitals or alternatively the Wellington hospital including the Wellington Hospital Platinum Medical Centre (PMC). 

Why did the AG blink at this possible remedy?

It's time to break up Standard Oil.  Of course, back then, the Supreme Court did the job.  Here, clearly the AG made a deal with the US Department of Justice to obtain primary jurisdiction for the case.  The problem with that is that the AG just has too many local affiliations to effectively regulate this massive employer. There's a reason we need Federal oversight from time to time.  The DOJ erred in allowing otherwise in this matter.

By the way, I also don't see anything in this agreement that would limit PHS' ability to establish its own insurance company.  As I have noted:

What will happen in markets like Boston where there is a dominant health care provider with dramatically higher costs than the rest of the market?  Is it possible for insurance companies to create commercially viable limited networks comprising the lower costs doctors and hospitals? They may try, but the day may also come when that provider group, to save its position, will create the insurance entity that will focus business towards itself.  Once it does, it will be able to manipulate internal transfer pricing to optimize profitability.


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