December 11, 2014

Where is value created in hospital mergers?

Hospitals, Market Share, and Consolidation

In the current wake of private hospital mergers, somebody should ask the right question. Where is value created?. If the goal is to reduce competition and create an environment close to a monopoly, than we can understand that market rivalry will decrease, prices will be higher, consumers will lose. In my opinion, the current mergers process shows signs of value destruction or value redistribution rather than value creation. Antitrust authority has been condescendent with the recent events and its resolution has forgotten the basics. Once you approve the merger, there is no way out, no easy reversal of a "quasi-monopoly" as it is the case of Barcelona private hospitals from today, that 64% of beds will belong to one firm.
Cutler and Morton published a JAMA article stating that something should be done to prevent such situations.
Antitrust authorities are examining these consolidated systems as they form, but broad conclusions are difficult to draw because typically the creation of a system will generate both benefit and harm and each set of facts will be different. Moreover, the remedies traditionally used (eg, blocking the transaction or requiring that the parties divest assets) by antitrust authorities in cases of net harm are limited. For this reason, local governments may want to introduce new policies that help ensure consumers gain protection in the event of consolidation, such as insurance products that charge consumers more for high-priced clinicians and health care centers, bundling payments to clinicians and health care organizations to eliminate the incentives of big institutions to simply provide more care, and establishing area-specific price or spending target
And their point is: local governments. Antitrust authorities are unable to understand the unique conditions of local competition. Unfortunately, local governments have no authority over such matters here. Meanwhile, the harm (to competition) has already been made.

PS. As far as the poor quality regulation is the norm in our current state, the only way out is to escape from this disordered world. To disconnect asap, there is no other option.

PS. If you want to know the answer to my today's question, have a look at this article: The Impact of Hospital Mergers on Treatment Intensity and Health Outcomes. You'll find strong reasons to be concerned:
The primary specification results indicate that mergers increase the use of bypass surgery and angioplasty by 3.7 percent and inpatient mortality by 1.7 percent above averages in the year 2000 for the average zip code. Isolating the competition mechanism mutes the treatment intensity result slightly, but more than doubles the merger exposure effect on inpatient mortality to an increase of 3.9 percent.The competition mechanism is associated with a sizeable increase in number of procedures.
PS. If Antitrust economics helps to support these processes, then somebody should rethink the theory and its application from scratch.

Cartier-Bresson. Rome Exhibition. Must see.