FTC/DOJ Administer a Dose of Competition

Most goods and services are bought and sold in this country with little fanfare or scrutiny. Health care is different. It is an essential service administered through an extraordinarily complex delivery system where the information flow differs greatly from that about less essential commodities. Not surprisingly then, competition in the health care system is not commonplace or usual. During the past two years, the Federal Trade Commission (FTC) and Department of Justice (DOJ) (collectively, the Agencies) have dissected this most unique phenomenon -- competition in health care. At hearings and workshops convened in 2002 and 2003 the Agencies solicited the views of interested parties, including health services researchers and economists, on the appropriate role of competition in health care markets.

The work of the Agencies focused on two central questions: "First, what is the current role of competition in health care, and how can it be enhanced to increase consumer welfare? Second, how has, and how should, antitrust enforcement work to protect existing and potential competition in health care¹." Their analysis culminated in a report over 300 pages long, Improving Health Care: A Dose of Competition². The report includes the following six recommendations to improve competition in health care markets and eleven observations on issues in antitrust enforcement.

FTC/DOJ Recommendations

HCFO has funded a large body of work in this area, including projects examining the use of providing increased information to consumers to enhance competition; the impact of information to consumers in enabling them to select health plans and providers; and a number of studies examining competition in the health care market. In particular, one study focused on the relationship of market power and price.   As a result, a number of HCFO grantees participated in the hearings and workshops, and their research findings have contributed to the debate.  In some cases, HCFO-funded research is currently ongoing and findings are not yet available, but will surely inform the future debate.

Bernstein AB, Gauthier AK, Guest Editors. Data Needs for Studies of Competition in Market Areas, A Special Supplement to Health Services Research, April 2001, 36(1), Part II.

What is the current or planned use of tiered hospital and/or physician networks in employer-sponsored health plans? In such networks, an individual's out of pocket cost differs depending on the "tier" to which the provider is assigned. This creates a financial incentive for individuals to select among providers based on the price, maximizing choice for individuals while still promoting cost savings. This study focuses on tiered network design and implementation, plan marketing and enrollment, and responses to tiered networks. The objective of the project is to provide important baseline data and early impact analyses to begin tracking the evolution of tiered network products over time, allowing public and private payers to make decisions about how best to design and implement future tiered network reimbursement structures.

How does hospital ownership affect health care providers and health plan performance? The researchers are conducting a quantitative meta-analysis of the main findings of the empirical literature on hospital ownership and performance. They are examining the significance of ownership effect on performance by statistically combining the information in each independent study (1990-2004), while taking in to account differences in quality of the empirical design. They will also note how studies account for market interaction and selection bias, since ownership conversions do not occur randomly among hospitals, and for-profits do not randomly enter markets. The objective of the study is to provide policymakers evidence-based guidance on a wide range of policies regarding hospital ownership, including setting provider payment and evaluating for-profit conversions in health care markets.

Is the willingness-to-pay (WTP) approach valid and should it therefore replace the current analytic method used by courts in health care antitrust analysis? The researchers propose validating and disseminating a new model (WTP approach) to assess market power and potential anticompetitive effect of hospital mergers. They posit that the current analytic method used by courts (referred to as the Elzinga and Hogarty (E/H) approach) is outmoded and theoretically unsound, but remains popular because no alternative exists. The researchers will (1) validate the relationship between WTP and provider prices; and (2) measure the relationship between (a) the increase in WTP that results from mergers, and (b) the increase in prices that results from mergers. The researchers believe that the implementation of a new model is needed to ensure that the competitive approach to health care delivery has a reasonable chance of succeeding. 

How are public "report cards" on consumer and physician behavior being disseminated? The researchers are evaluating PacifiCare's Quality Index report cards which provide a relative performance assessment of provider groups in selected areas of clinical, service and administrative quality. The researchers are testing (1) how new and continuing health plan enrollees use comparative quality information to select a physician group; (2) how mobilization of consumer choice based on comparative quality information drives physician group performance improvements; and (3) how physician groups are responding to performance measurement when data are used for confidential benchmarking only while other dimensions of quality are reported to consumers. The objective of the project is to fill an information gap concerning the value of publicly reported quality information and to provide guidance to public and private decision makers on the measurement and dissemination of provider quality. 

What is the influence of capital access, during the period 2000-2005, on corporate consolidation in two health care sectors: insurance and hospitals? Specifically, the researcher will examine the financial capital/consolidation relationship by developing quantitative data on capital flows, conducting case studies of leading firms, interviewing capital market participants and analyzing finance literature on agency relationships. The objectives of the project are to use capital market analysis to inform public policy relative to (1) the development of regulations governing financial information disclosure; and (2) the development of regulations (e.g. patent, antitrust) governing the influence of financial capital on health care organization and consolidation and (3) the pros and cons associated with conversions by health plans from nonprofit to for profit status, including how best to value underlying assets. 

• Robinson JC.  The Curious Conversion of Empire Blue Cross Health Affairs, July/August 2003, 22(4).
• Robinson JC.  Reinvention of Health Insurance in the Consumer Era JAMA, April 2004, 291(15).
• Robinson JC.  From Managed Care to Consumer Health Affairs, March/April 2004, 23(2).
• Robinson JC.  For-Profit Non-Conversion and Regulatory Firestorm At CareFirst BlueCross BlueShield Health Affairs, July/August 2004, 23(4).

How does examining the feasibility of using episode-based physician profiling systems help to evaluate the practice efficiency of physician specialists? The researchers completed a HCFO-funded study in which they evaluated the accuracy of seven primary care provider profiling methodologies and examined the implications of differences in accuracy for assessments of physician performance. The researchers are focusing on two of the seven methodologies which were episode-based, Episode Treatment Groups (ETGs) and the MEDecision Practice Review System (PRS), to examine 15 (10 medical and 5 surgical) specialties. The objective of the project was to determine whether the risk-adjustment methodologies used to generate reliable profiles in a primary care setting can be extended to specialists given the unique factors that arise in profiling specialty physicians.

How accurate are existing physician profiling products used by health plans at predicting/identifying resources used by physicians and physician groups? Researchers at the University of Michigan evaluated these products to answer the following questions: 1) Do some physician profiling risk-adjustment methodologies produce more accurate profiles of physician practice efficiency than others? If so, how do the methodologies compare? 2) How does the number of patients managed by a physician affect the accuracy of the physician's practice efficiency profile? and 3) Are differences in accuracy among profiling systems' risk-adjustment methodologies large enough to affect rankings of physicians' practice efficiency? How consistent are physician practice efficiency rankings from different profiling systems, and how consistent are the systems in identifying outlier physicians? As the researchers noted, physician-profiling information "can be used to select network providers, channel patients, and identify both exemplary practice styles and those that suggest a need for education. Also, reports indicate that profiles are used by health plans for identifying physicians for de-selection from networks." The objective of this study was to evaluate the accuracy of the profiling methodologies being marketed to health plans and examine the implications of differences in accuracy among the tools.

Thomas JW, Grazier K, Ward K.  Economic Profiling of Primary Care Physicians: Consistency among Risk-Adjusted Measures Health Services Research, August 2004, 39(4).

Do hospital networks enhance the market power of hospitals in ways that lead to higher prices? Do networks produce pro-competitive benefits in the form of new services? Researchers at Boston University's School of Public Health assessed the degree to which networks decrease competition for hospital services and the implications for their costs. The research focused on four questions: 1) What do local hospital networks look like in terms of attributes that are potentially relevant to their effect on the cost and accessibility of hospital services? 2) Do hospitals appear to use networks to enhance their market power for purposes of charging higher prices for their services? 3) Do hospital networks appear to produce pro-competitive benefits such as new services that expand access to care? 4) Does the structure of hospital networks have implications for their effect on the cost of hospital services? These research questions related to the larger issue of whether antitrust laws should be relaxed in the case of hospital collaborative arrangements. The objective of the project was to inform policymakers about the appropriate level of scrutiny for hospital networks that may reduce competition for hospital services, as well as to assist antitrust enforcement officials and researchers about how to properly conceptualize and measure the degree of competitive rivalry within hospital markets.

Young, G.J., Burgess, J.F. and Valley, D.  Competition among Hospitals for HMO Business: Effect of Price and Nonprice Attributes.  Health Services Research, October 2002, 37(5).

What is the impact of hospital ownership changes on strategic and clinical outcomes? Using the Lewin database (approximately 600 conversions), particularly those for which there is complete transaction information (approximately 350), supplemented with data from the Medicare Cost Reports, Medicare Provider of Service Files, American Hospital Association Annual Survey of Hospitals, IRS Sources of Income, and the Area Resource File, researchers from Duke University examined: 1) why some hospitals choose to convert to for-profit status and why they select a particular type of ownership change; 2) in what percentage of cases a "fair" price is paid by the acquiring organization; and 3) how conversions affect the hospitals' internal decision-making process. They also obtained some information by telephone from hospitals and other parties familiar with the transactions. Finally, they analyzed how strategic business decisions and clinical decisions are affected by will conducting 20 case studies of converted hospitals, comparing the information collected with similar information from 20 matched control hospitals. The investigators hypothesized that organizational goals vary by ownership and differences in goals are reflected in differences in decision-making processes and outcomes. In addition, they posited that conversion increases uncertainty, which, in turn, may reduce the effectiveness of staff and put the hospitals at risk for poor outcomes. The objective of the study was to provide policymakers and regulators with additional information about where oversight and/or intervention with respect to hospital conversions might be desirable. 

• Sloan FA. Ed., Alan M. Garber.  Hospital Ownership Conversions: Defining the Appropriate Public Oversight Role Frontiers in Health Policy Research, 2002, Vol. 5.
• Anderson RA, Allred CA, and Sloan FA.  Effect of Hospital Conversion on Organizational Decision Making and Service Coordination Health Care Management Review, April/June 2003, 28(2).
• Sloan FA, Ostermann J, and Conover CJ.  Antecedents of Changes in Hospital Conversions Inquiry, Spring 2003, Vol.40.
• Sloan F, Picone G, and Chou S-Y.  Are For-Profit Hospital Conversions Harmful to Patients and to Medicare? Rand Journal of Economics, Autumn 2002, 33(3).

• Sloan FA, Conover CJ, and Ostermann J.  Rates of Return from Hospital Conversions Health Care Management Review, April/June 2003, 28(2).

How do hospital conversions from nonprofit to for-profit status affect the communities they serve? Researchers at Boston University examined both short-term and long-term impacts using several different measures of community benefit, including uncompensated care, provision of unprofitable services, price discounts, and community representation on governing boards. They also assessed the number of conversions that resulted in either hospital closures or changes in service orientation. The researchers studied hospital conversions in three states: California, Florida and Texas. California and Florida data will cover the period between 1979 and 1996; Texas data span 1988 through 1995 (1996 if available). They also examined Medicare Cost Reports and American Hospital Association survey data. The objective of the study was to assess whether, and how, hospital conversions from non-profit to for profit status affects the community that these hospitals serve. 

To what extent do hospital mergers and consolidations help reduce excess capacity and contain costs? What factors and barriers explain these effects? The researchers examined the St. Louis hospital market, which has experienced "extensive merger activity in recent years," as well as the Philadelphia hospital market which has experienced less merger activity, to assess whether horizontal integration combined with purchaser pressure can shrink the excess capacity in a hospital system. They explored whether this occurs in a way that leads to more efficient utilization of hospital staff, equipment, and facilities. In particular, they: 1) developed and defined stages of evolution that hospitals and hospital networks experience after becoming integrated through mergers, acquisitions, or network affiliations; 2) determined the extent to which horizontal integration among hospitals has led to reduced excess capacity, more efficient utilization of plant and equipment, a more streamlined workforce, and lower costs in the St. Louis market; and 3) developed a set of indicators that measure the impact of horizontal hospital integration and determine the stage of a network's evolution that could be applied to other communities and establish a baseline for St. Louis. The objective of this study was to provide policymakers with information about whether hospital mergers lead to measurable outcomes related to efficiency, particularly in the areas of resource supply, utilization, and cost.

HCFO Findings Brief: April 1998 | A Tale of Two Cities: Hospital Mergers in St. Louis and Philadelphia Not Reducing Excess Capacity

How has the hospital industry changed since 1936, and what indicators could be used to predict change? Researchers at Boston University compiled a data set comprising 1400 variables on approximately 1200 hospitals in 52 large and mid-size U.S. cities from 1936 to 1980. In this project, they updated the dependent variable -- whether the hospital has closed, relocated, merged, or remained open in place -- for the years 1990 and 1995. The researchers described the changes in hospital configuration in 52 cities from 1936 to 1995. They delineated how the different changes in hospital configuration vary by city size and region of the nation and analyze the predictors of hospital closings, relocations, and mergers between 1980 and 1990, between 1990 and 1995, and for the full fifteen years together. The objective of this study was to help policy makers better understand the meaning of how market and environmental factors affect hospital configurations. what extent do hospital mergers and consolidations help reduce excess capacity and contain costs? What factors and barriers explain these effects?

Do hospital mergers threaten competition by limiting hospital choice or enhance competition by creating greater efficiencies in the system? This project was a descriptive analysis of the impact of hospital mergers on the market in California. Ultimately, the researchers hoped to increase understanding of the impact of hospital consolidations and provide a foundation for developing a more explanatory multivariate model. The results of this research will help policymakers understand the context in which merger decisions are made and the effects of those mergers in markets with differing characteristics, on operations, finances, and the communities served.

Zwanziger J, Melnick GA, Simonson L.. Differentiation and specialization in the California hospital industry 1993 to 1998 Medical Care, April 1996, 34(4).

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¹http://www.usdoj.gov/atr/public/health_care/204694.htm

²Ibid.