• Market power, ACOs, qualitative analysis, and policy implications

    Historically, I’ve been  a very quantitative and multivariate thinker. That explains my undergraduate and graduate interest in physics and engineering, my fascination with the game of Go, and my professional focus on econometric techniques for causal inference in health care. But lately I’ve been paying a lot more attention to qualitative and descriptive evidence in the health services research literature.

    It’s not that I suddenly think qualitative and descriptive analyses answer questions any more definitively than do the complex multivariate approaches I normally consider. It’s that qualitative and descriptive analyses are incredibly helpful in revealing potential relationships, suggesting hypotheses, and relatively quickly and easily revealing the possible broad nature of and context for an issue.

    Moreover, less econometrically or statistically complex analyses are more easily communicated to thinkers outside the field, like policymakers, journalists, and beekeepers. That’s important, and I have no problem using results of simpler analytical techniques for policy advocacy so long as the qualitative conclusions they suggest are consistent with more rigorous, but complex and less broadly accessible, approaches.

    But be on guard! How can non-practitioners tell when qualitative or descriptive analyses are “telling the truth” and when they’re just wrong? Oh boy, is that a thorny issue. For now I”ll just say, roughly speaking, they can’t. They need the guidance of experts. (Perhaps I’ll come back to this issue another time.)

    With that as backdrop, here are two very good passages from just one of many qualitative/descriptive papers published by researchers with the Center for Studying Health System Change. The paper, by Devers et al., appeared in a 2003 issue of Health Services Research. First, on market power:

    Market power is defined as the degree of control or influence an organization has over another organization (Scott 1987; Emerson 1962). Control or influence is shaped by the willingness and ability of one organization to sanction (i.e., punish or reward) another organization that it interacts with to attain key goals, such as survival, growth, or increased margins. The origin of market power is the dependency one organization has on the resources controlled by another….

    This sociological definition highlights why and how an organization exercises market power, as well as the outcome (i.e., increased control or influence over another organization in a key area). As such, this definition of market power is broader than those used in economics, which focus primarily on the ability of an organization to influence price. For example, Carlton and Perloff (1994) define market power as the ability of a firm to charge a price above that which would prevail under perfect competition, usually taken to be marginal cost.

    Next up, some commentary that relates market power (or “negotiating leverage,” which the authors take to be a synonymous moniker) to arrangements that may be encouraged by an accountable care organization (ACO) payment model.

    Another key change [between 1996 and 2001] was the level of hospitals’ vertical integration with physicians (e.g., physician practice acquisition, formation of intermediary organizations such as physician–hospital organizations). Greater hospital-physician alignment strengthened hospitals’ negotiating leverage and weakened plans’ options. Many hospitals had implemented a range of physician-integration strategies, becoming a critical gateway for plans to physicians in the market. In many of the contract disputes noted above, plans were negotiating with hospital-physician organizations for physician professional services as well.

    That pretty much sums up my concerns about ACOs, and those of others in my field. I think the qualitative ideas suggested–that vertical integration encouraged by ACOs may increase provider market power and consumer prices–are consistent with rigorous quantitative studies of hospital and provider market power. (I’ve cited about a bazillion of such studies in prior posts; or, you can just trust me.) So, I have no problem making some policy suggestions based on these concerns. Here goes:

    First, let me be clear, I’m not saying ACOs are bad. I’m saying I have concerns about the implications for private-sector costs of such organizations, which will be encouraged under new Medicare and Medicaid, ACO-like payment schemes. What this means is that policymakers and regulators need to tread carefully in this area, think things through, and come up with public-side cost control approaches that don’t exacerbate private-side problems. (I suggested one idea, though without substantial detail. If someone were to pay me to study it–you know, rigorously, quantitatively–I’d have more to say. Meanwhile, back to thinking about ideas I’m actually paid for …)

    • Ausitn
      Since this is an area of interest for me as well, can you clarify a point. You cite your earlier post in placing primary care docs at the center of payment receipt and oversight, yet at the same time, you advocate for public side cost control approaches, rather than private side.

      Are the two ideas not incongruous, ie, primary care docs can engage in gamesmanship both for self-interest and their member system as opposed to countering these “anti-public good” forces?

      Could you give a bullet point or two of other illustrative examples so perhaps I can get a better idea of what you envision?

      • @Brad F – I assume everyone will act according to incentives and “engage in gamesmanship.” The argument is that primary care is not where the costly care is or can ever be, relative to that which hospitals or ASCs provide, for example. So, making PC docs referral gatekeepers and empowering them with distribution of whatever bonuses are associated with ACOs may be a way to have one’s cake and eat it too. The public-side cost control via an ACO model is retained but there is less of a private-side market power issue. An insurer can still contract with a hospital without that hospital using a vast provider network as leverage. The hospital doesn’t control a larger provider network in this model.

        This is very different from how ACOs are normally described, with a hospital at the center, integrating with physician groups throughout a region. There the hospital is increasing negotiating leverage.

    • What if the hospital responds by integrating the PCPs into their structure? I m also not sure how this will play out in small markets. I agree that the real money to be saved is in ASCs and hospital care, especially testing and procedures, but in small markets, there are not many options.

      My expectation is that PCPs will not do much about costs, but will reduce utilization.


      • @steve – I would not defend my suggestion strenuously. It was pretty speculative and I’ve done no research on it, nor seen any done by others (if it exists). I would not be distraught if it ends up in the dustbin.

        However, we know from the 1990s that the referral requirements have a strong effect on overall utilization and cost. If PC docs are also compensated based on the quality of the docs and institutions to which they refer, then we harness a far more nuanced and expert appreciation of quality than one can obtain via quality report cards. (Of course with payments tied to quality, the issue of quality measures and their imperfect and finite nature, still arises.)

        The big issues here are (1) who bears how much of the cost risk in the system and (2) how do we navigate the complex and multidimensional nature of quality? I’m casting about for ways to put more of the risk (issue 1) on those who have superior information and to put the quality assessment (issue 2) in the hands of those capable of handling it, and in doing all of the above on the public side without exacerbating problems on the private side.