the state of competition in local health care markets
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The State of Competition in Local Health Care Markets. Statement of Paul B. Ginsburg, FTC/DOJ Hearings on Health Care and Competition Law and Policy February 26, 2003. Key Points. Rise and fall of managed care throughout the 1990s shapes competition today - PowerPoint PPT PresentationTRANSCRIPT
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Providing Insights that Contribute to Better
Health PolicyThe State of The State of Competition in Local Competition in Local Health Care MarketsHealth Care Markets
Statement of Paul B. Ginsburg, FTC/DOJ Hearings on Health Care and Competition Law and Policy
February 26, 2003
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Key Points Key Points
Rise and fall of managed care throughout the 1990s shapes competition today
Forces outside purview of anti-trust enforcement have influenced competition Many have limited competition
Many markets have limited prospects for effective competition
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Center for Studying Health System Center for Studying Health System Change (HSC)Change (HSC)
Research on changes in the organization and delivery of care -- and their impact on people Objective information for policy makers Funded by The Robert Wood Johnson Foundation
Emphasis on health care markets
www.hschange.org
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CTS Site VisitsCTS Site Visits
Insight into changing market trends
Visit 12 randomly selected sites every two years
Most recent visits in 2000-2001
Conduct 50-90 interviews in each site, including a broad cross-section of local health system leaders
“Triangulate” results
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The CTS SitesThe CTS Sites
Little Rock, ARLittle Rock, AR
Phoenix, AZPhoenix, AZOrange County, CAOrange County, CA
Miami, FLMiami, FL
Greenville, SCGreenville, SC
Indianapolis, INIndianapolis, IN
Lansing, MILansing, MI
Northern NJNorthern NJ
Syracuse, NYSyracuse, NY
Cleveland, OHCleveland, OH
Boston, MABoston, MA
Seattle, WASeattle, WA
Site visits and surveysSite visits and surveys
Survey onlySurvey only
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Plan of TalkPlan of Talk
Background: Experience of 1990s Hospitals Physicians Insurers Provider/Insurer relations Purchasers Overall potential for competition
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Background: Ascendancy of Background: Ascendancy of Managed CareManaged Care
Narrow networks, provider risk, and authorizations become core components of financing
National and regional managed care plans formed and expand vigorously
Hospitals form systems and consolidate
Managed care and Medicare cuts pressure hospitals to contain costs
Physicians chafe at loss of autonomy and income
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Background: Retreat of Managed Background: Retreat of Managed CareCare
Less restrictive model of managed care emerges in response to backlash and economic boom Broader provider choice Fewer requirements for authorizations Reduced use of risk contracting
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Background: Provider Response to Background: Provider Response to Retreat of Managed CareRetreat of Managed Care
Provider structures developed for managed care unravel Less basis for vertical integration Little follow through on clinical integration
Providers regain leverage with health plans
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Slowing of Trend of Hospital Slowing of Trend of Hospital ConsolidationConsolidation
Fewer players left—reaching the limits
Managed care less threatening
Little excess capacity in face of increasing demand
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Hospitals Focus Competition on Hospitals Focus Competition on Perceived QualityPerceived Quality
Vigorous competition in some consolidated markets Mostly on non-price dimensions
Return of the “medical arms race“ for profitable services
Sharp increase in promotional activity
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Hospitals Facing Entry Threat: Hospitals Facing Entry Threat: Specialty FacilitiesSpecialty Facilities (1) (1)
Focus on profitable services Inadvertent market signals Specialization increases impact of pricing distortions
Tool for hospitals to invade others’ geographic turf
Additional threat from physician-owned facilities
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Hospitals Facing Entry Threat: Hospitals Facing Entry Threat: Specialty Facilities (2)Specialty Facilities (2)
Potential for erosion of traditional cross subsidies
Plan resistance to contracting
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Physician Consolidation into Single-Physician Consolidation into Single-Specialty GroupsSpecialty Groups
Key motivations Achieve scale to purchase profitable equipment Increase leverage with health plans
Lack of emphasis on multi-specialty groups
Decline in physician-hospital organizations
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Insurer ConsolidationInsurer Consolidation Mostly Across Mostly Across MarketsMarkets
Fewer opportunities for consolidation within markets Some opportunities for entry through purchase of hospital-
owned plans Many examples of failed entry
Most plan mergers oriented to scale economies Information technology Care management technology Marketing economies But scale economies difficult to achieve
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Nature of Health Plan CompetitionNature of Health Plan Competition
Product innovation Customization for diverse employers
Competing with other vendors Emphasis on case management Novel benefit structures
Customer service
Pricing “discipline”
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Blue Cross-Blue Shield: Solidified Blue Cross-Blue Shield: Solidified Dominance in Some MarketsDominance in Some Markets
Historically large market shares
Benefit from shift in consumer preferences Broad networks
PPOs rather than HMOs
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Blue Consolidation Intertwined with Blue Consolidation Intertwined with ConversionConversion
States less resistant Potential revenue source
Greater attention to price
Split within Blue world on virtue of conversion
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Hospitals Gaining Leverage Over Hospitals Gaining Leverage Over PlansPlans
“Must have” status of leading hospitals
Constrained hospital capacity
Hospitals have resisted tiered networks
Evidence of moderately higher price trends
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Physician Leverage Has Grown LessPhysician Leverage Has Grown Less
Brand-name status carries less clout for physicians Key exception is some single-specialty groups Most physicians are price takers Price trend has remained low
Trend towards leaving networks and boutique medicine
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Purchasers Influence Nature of Plan Purchasers Influence Nature of Plan and Provider Competitionand Provider Competition
Demands for broad networks
Taking sides in showdowns
Shape of benefit package
Willingness to pay for quality
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Changing Purchaser BehaviorChanging Purchaser Behavior
Decline in collective activity National mergers Smaller HR departments Lack of success in past
Behavior follows economic cycles Profitability Tightness of labor markets
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Competition on Clinical Quality Competition on Clinical Quality Limited by Lack of InformationLimited by Lack of Information
Mixed experience with hospital report cards
“Private regulation” approach of Leapfrog Group
Government may need to act as catalyst
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Many Markets Have Limited Potential Many Markets Have Limited Potential for Price Competitionfor Price Competition
Small numbers of hospital systems and health plans Entry difficult
Barriers to consumer price incentives Limits to cost sharing Absence of useful information on clinical quality Leaders’ desire to protect cross subsidies to care
for the uninsured
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How to Deal with Absence of How to Deal with Absence of CompetitionCompetition
Informal “public utility” pressures Can prevent egregious behavior But unlikely to meet other goals for competition
Medicare payment provides incentives to control costs
Alternative options 1970s-style regulation Increase patient financial responsibility