Wednesday, April 1, 2015

Bigger Is Not Necessarily Better: Hospitals v. Innovative Innovation Market Entries

The only power much care for the powerful is more power. The prize for the general is not a bigger tent, but command.

O.W. Holmes, Jr, (1841-1935), The Law and the Court

We believe it is not enough to stop dominant hospital systems from acquiring more power (Regina Herzlinger, Barak Richamman, and Kevin Schulman, “ Market-Based Solutions to Antitrust Threats – The Rejection of the Partners Settlement,” New England Journal of Medicine, April 2, 2015).

Regina Herzlinger , a tenured professor of business at the Harvard Business School, wrote in front of her book, which she sent to me, Consumer- Driven Health Care, (2004), “In admiration of all you do,”.

What I do is preach innovation, as in my book, Innovation-Driven Health Care (2007), and so does she in a series of books, including Who Killed Health Care (2007).

Regina’s consistent message is: Non-profit charitable hospitals are too big and fat and stifle competition. In the current New England Journal article, she and her two co-authors say, “ Hospital markets in more than 80% of U.S. metropolitan areas are ‘highly concentrated’, according to federal guidelines , and dominate hospitals continue to expand rapidly.”

On Boston, due to a 1994 merger between Massachusetts General and Brigham and Women’s Hospitals, the Partners system often charges two to three times as equal quality systems treating patients with equally complex conditions.” And Massachusetts has the highest per capital costs among U.S. states and the longest patient waiting times.

But unfortunately, big systems tend to quash competition, from for-example, innovative telemedicine providers and community-based urgent care centers. To contain the dominance of Partners, a Superior Court Judge in Boston blocked a settlement what would have allowed Partnrs Health to acquire three additional health systems in eastern Massachusetts. This was a good thing, according to Regina. The judge’s reasoning was the acquisition “would cement Partners’ already strong position in the health care market and give it the ability, beause of this market muscle to exact higher prices from insurers for the services its providers render.”

Too often settlements between dominant hospitals and policy makers entrench hospital dominance and stimulate its expansion. Instead we need policies that encourage innovation-oriented policies that promote lower prices, greater accessibility, and increased quality of care. Regina et all conclude, “We believe it is not enough to stop dominant hospital systems from acquiring more power. Policies must encourage innovative entrants.

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