• More medical mergers

    From the Boston Globe’s Steven Syre:

    Two of the state’s largest private medical practices are in talks to merge into a giant doctor-run group that would care for nearly a million Massachusetts patients and significantly escalate the pace of health care consolidation throughout the state.

    Atrius Health, which runs the Harvard Vanguard system and four other doctors practices, is in advanced talks with Fallon Clinic, the Worcester-based medical group. […]

    Hospitals are also building bigger physician networks, affiliating with doctors or hiring them outright, funneling more patients to their institutions. Large physician networks at Steward, Tufts Medical Center, and the parent company of Massachusetts General Hospital and Brigham and Women’s Hospital are among the growing hospital-based doctor groups.

    A combined Atrius-Fallon would be a much different kind of health organization, however, built around doctors and big enough to negotiate aggressively with hospitals on reimbursement rates and shared financial risks. […]

    The consolidation of doctors and institutions also anticipates a potential sea change in health care payments, with providers receiving a fixed amount of money to care for patients, rather than collecting fees for individual procedures.

    Governor Deval Patrick has submitted a health care bill that would encourage, but not mandate, such arrangements — known as accountable care organizations — in Massachusetts.

    As hospital-based groups have grown larger and prepared for such a system, some insurance executives worried privately that the institutions would wield too much market power.

    “We need to keep a balance of power in this state between physicians and hospitals,’’ said a senior health insurance executive who did not want to be identified to avoid antagonizing business partners.

    “If we have a strong Atrius, we can keep some of the hospitals in check. I worry that too many physicians are becoming employees of hospitals. [Hospitals] are doing it because they want to control referrals — I get it — but it’s not healthy.’’

    More here.

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    • The normal model is that as consumers, we’d like a large organization with the bargaining power to lower costs from suppliers (Walmart and Medicare seem good examples), so long as that organization does not have monopoly power over us, so that it can raise prices.

      There’s been a lot written about vertical mergers – buying a supplier – as opposed to horizontal mergers – buying a competitor. Vertical mergers are usually less of a problem so long as there’s horizontal competition.

      It’s not clear to me how well this applies to healthcare, given the numerous distortions in the market. Also Krugman’s column today that the entire ‘patient as consumer’ model is misguided.

        • As you say: “Comparing independent measures of
          hospital and insurer market concentration to thresholds provides an incomplete characterization of the potential for harm (or benefit) to
          consumers or upstream providers. Rather, it is the relative balance of market power between hospitals and insurers that matters. Our current knowledge of when and how to achieve the optimal balance is, unfortunately, not sufficient to guide regulators and policymakers as
          they attempt to navigate the changing landscape of the nation’s health care system.”