Editor’s note: This post by Abbe R. Gluck introduces a Health Affairs Blog symposium featuring many of the participants in “The New Health Care Industry” conference held recently at the Yale Law School’s Solomon Center for Health Law and Policy. Gluck, who directs the Center, introduces the symposium and discusses the main themes addressed at the conference.

Links to all posts in the symposium are at the bottom of this post, and you can also access a full list of symposium pieces here or by clicking on the “Yale Health Care Industry Symposium” tag at the bottom of any symposium post. 

Everyone involved in health care knows that the industry is in a period of marked consolidation and transformation. These changes are happening in all sectors, both within each sector and across them, too. Hospitals are acquiring not only other hospitals but physician practices and insurance businesses; medical providers are opening accountable care practices that may function alongside still-operating traditional fee-for-service models; insurers continue to grow, arguing that their own mergers are necessary to counterbalance the excessive, and growing, market power of hospitals.

These moves pose innumerable challenges for health care policy and law. How, for instance, does innovation fare in this new consolidated landscape? Does consolidation improve patient outcomes even if it sometimes falls short on its promise of reducing costs? How much should law enforcement—federal antitrust enforcement, especially—interfere with the current trends? Much consolidation occurred before federal regulators became more attentive; what, then, is the role for regulatory policy now that consolidation is already here? Why is consolidation happening in the first place? Is the Affordable Care Act (ACA) to blame (or credit)?

These questions are at the core of this special symposium on The New Health Care Industry — the result of a two-day conference co-sponsored by Health Affairs, the Solomon Center for Health Law and Policy at Yale Law School, and the Yale School of Management that brought together industry leaders, academics, and law enforcers to take the pulse of our current industry transformation.

The contributions to be published in these pages reveal a landscape that remains hotly contested and significantly unsettled. Industry leaders see the modern moves not only as necessary but as beneficial to consumers and industry alike, while the economists critique consolidation for raising prices while reducing consumer choice and failing to improve outcomes. Law enforcers—including one conference keynote speaker, William Baer, the Assistant Attorney General for the Antitrust Division at the U.S. Department of Justice—see a robust constraining role for law in this context. On the other hand, the private lawyers who defend major providers argue that antitrust law has not yet figured out how to properly evaluate the benefits and drawbacks of modern mergers.

Other points of potential controversy are salient by virtue of their conspicuous absence from the many hours of debate: We hear surprisingly little in these pages about the effect of market changes on the most vulnerable populations, the everyday patient experience, the average physician herself, or even on scientific research and development. These areas are of course central to the fashioning of optimal health policy, yet they appear wanting for research and elaboration.

What Is The Effect Of Consolidation On Innovation?

Three major themes do emerge that should help to frame discussion going forward. First: What is the effect of consolidation on innovation in the industry? This is a deep question, because “innovation” in this context has multiple meanings. Big system CEOs argue that consolidation is the means toward innovation.

For instance, Michael J. Dowling, President and CEO of Northwell Health, proclaims the death of the old-fashioned “hospital business”; he argues that hospitals must diversify to survive and, in the process, must transform their vision to one of total population health rather than just episodic care. That is one type of innovation. Indeed, it is the very kind of perspective change that the Affordable Care Act aims to incentivize and that companies like Kaiser—as elaborated in these pages by Executive Vice President Benjamin Chu—have spent decades working to entrench.

Lewis Sandy, Senior Vice President of Clinical Advancement at UnitedHealth Group, echoes Dowling in his observations of UnitedHealth’s experience diversifying its own business and building a separate platform capable of generating the kinds of data necessary for a population-health perspective. Yale Medical Group CEO Paul Taheri picks up on the point about cultural change in describing the challenges of reorienting entrenched medical organizations toward these modern goals. The same challenges apply to innovation and cultural shifts in medical education. Professor William Sage argues that “generational changes”—in particular, the younger generation’s comfort with teamwork, performance metrics, and data analytics—make these moves away from traditional models of medical practice less jarring, and so more likely to succeed, among new doctors.

More specifically focusing on the link between consolidation and research and development (R&D), Brent Henry—the Vice President and General Counsel of Partners HealthCare System, which has seen plenty of its own legal drama over efforts to expand—explains why academic medical centers (AMCs) have had to grow their operations so significantly: the only way to support the research and educational missions that AMCs provide, he argues, is to find a way to spread those costs across other parts of the system through the adjustment of clinical costs.

But the effect of consolidation on R&D is otherwise conspicuously absent from the contributions. How, for instance, does horizontal consolidation in the pharmaceutical industry affect the development of new drugs? Is the work of AMCs—where experimentation and trial and error are part of the pedagogy—really consistent with the drive toward accountable care? These questions, too, require much deeper inquiry.

The economist contributors are much more pessimistic. Leemore Dafny illustrates how consolidation in the insurance industry has reduced product variety and consumer choice without increasing innovation. Martin Gaynor makes a related point with respect to hospital consolidation, describing how diminished competition may impede attempts to control costs while removing the incentives necessary for delivery and payment innovation. Barak Richman similarly cautions that product and delivery-system innovation—obviously essential to a market like health—are in peril because of a dysfunctional health care market that has been unusually resistant to new entrants.

The Risk Of Incompleteness In Transformation

The second theme that emerges is the risk of incompleteness in transformation. As several contributors emphasized, consolidation does not necessarily equal integration, and integration—as Chu reports, along with his colleague Cecilia Montalvo, the Vice President of Business Development at Kaiser—is a multi-year, multi-pronged effort for which many providers may not have the stomach or the resources.

The cultural change necessary for a truly accountable care approach likewise may not be the kind of change that organizations can take in small steps or accomplish by keeping old doors open. Montalvo points out that, although many providers are currently experimenting with risk-based payment models and population health management, most “are stuck straddling two different payment worlds,” because accountable care contracts are only a fraction of provider revenue and, thus, too small to change the business model. She argues that there “may be a tipping point, about 30-40 percent of a provider’s business, that must be risk-based to justify the resource investment and culture needed to build a successful accountable care infrastructure.”

Others focused on the problem for hospitals in particular with this transition. Professor Michael Chernew highlights one kind of difficulty: hospitals have fixed costs that do not decline with the reduced utilization that is one goal of the ACO model. It is possible, he argues, that hospitals still stand to gain from the efficiencies and integration the ACO model provides, but this seems a close question.

Robert Berenson from the Urban Institute cautions that payment reform is a fantasy as long as large hospital-based systems have market power, because hospitals have historically depended on volume-based payment for profit and so may be “ambivalen[t] about how big a jump to take in the direction of population-based payment.” As a result, he focuses on reforming traditional payment from within rather than trying to create altogether new value-based payment models hospitals may never espouse.

The Proper Law Enforcement Balance

The third theme is the proper law enforcement balance. It is clear from this symposium that federal antitrust enforcement is not going to provide the new health care industry a free pass. All three federal-regulator speakers—Baer and his colleague Peter Mucchetti, Antitrust Litigation I Section Chief from the Department of Justice, as well as Henry Su from the Federal Trade Commission—emphasize that pro-competition law should continue to operate robustly: the common refrain “the ACA made me do it”—referring to the many incentives toward integration in the ACA—is no defense at all. Instead, they argue, even ACA-promoted integration must proceed in ways that preserve competition. Law professor Tim Greaney likewise exposes weakness in what he calls the “sumo wrestler” antitrust defense to expansion: namely, the argument frequently advanced by both hospitals and insurers that expanding their own power will enable them to counter the market power of the other, thus “leveling the playing field” to the ultimate advantage of consumers.

Thus, the critical question seems to be: What regulatory tools are still appropriate when so much consolidation already has occurred? The barn doors may not be closable at this point, nor may we really want to close them, as I elaborate below. So is it too late for old-fashioned antitrust? What other tools might be available?

One answer that emerges from this symposium’s contributions is that we may need more sophisticated means of evaluating new mergers than provided by traditional antitrust. Whereas consolidation within a sector—“horizontal consolidation”—is familiar territory to health antitrust, much less familiar is the terrain that now marks health care’s most cutting-edge deals, namely the terrain of “vertical integration” — mergers across sectors. Antitrust law typically examines such vertical moves by assessing their costs and benefits. One common metric is the effect on competition, the extent to which a proposed merger leaves a landscape that still has other competitors, and the modern mergers do not always fare well under that standard.

But as defense counsel Toby Singer notes, health systems expand for many reasons beyond a desire to swallow the competition. Those system leaders who sincerely believe that a total population approach ensures the best outcomes for patients have positive incentives that are not as easy to measure for antitrust and may be given unduly short shrift. Anyone following the development of metrics for accountable care knows how difficult it is to measure health care quality — but these measures, too, may be vital to fair antitrust enforcement of new mergers. Singer argues that we should give the industry a chance to truly integrate care—in other words, allow the mergers to proceed and then call on companies to prove the benefits of those moves. That is, instead of pre-merger enforcement, she advocates a more creative approach that focuses on actual post-merger results.

Other policy tools outside of federal antitrust are also available. Experts like Berenson, as noted, argue for payment reform. Conference keynoter Maura Healey, the Attorney General of Massachusetts, along with Professors Jaime King and Erin Fuse Brown, also remind us that the federal government is not the only regulator in town. They note the complementary tools available to state regulators, many of which may be more friendly to mergers, or at least more flexible, than federal enforcement. King and Fuse Brown, in addition to elaborating more traditional state enforcement mechanisms, such as rate review and state antitrust analogues, also return to the importance of data collection, suggesting that state-created all-payer claims databases are powerful weapons in monitoring how post-merger market changes affect consumers.

There Is No Going Back (Would We Want to If We Could?)

The contributions that follow provide a roadmap to these critical debates. One important point to note in closing, however, is that no one has argued for a return to the past. For all the concern about price, competition, innovation, and cultural change, not a single contributor argues in favor of further entrenchment of the fee-for-service model; for the return to the olden days of the solo practitioner; for the abandonment of an emphasis on data or population health; or even (with the possible exception of Berenson) for the de-romanticization of accountable care. It may be true that some contributors would prefer that some already-completed mergers had never occurred (although none implies as much), but the inevitability and desirability of system change seems universally accepted.

What comes out of this symposium is therefore not the question whether we should or will have a “New Health Care Industry” but, rather, a recognition that it already is here. What its goals are, how to measure them, and how to get there must be our new agenda.

List Of Posts

Symposium posts include:

Editor’s note: Visit Health Affairs for more on the themes addressed in “The New Health Care Industry” conference and this Health Affairs Blog symposium. Notable examples include a recent reporters breakfast, “Health Care Consolidation: What You Need to Know”; a Web First package on provider consolidation; an article by Paul Jacobs, Jessica Banthin, and Paul Trachtman on the relationship between insurer competition and premiums in the federally run marketplaces; and an article by Robert Berenson, Paul Ginsburg, and Nicole Kemper on provider market power in California.