Although not the only factor, government payment reform initiatives in the Affordable Care Act (ACA) are widely perceived as driving health care market consolidation.  Perhaps more significantly than mergers between hospitals, the ACA has created new interest in mergers across service lines (as reported herehere, and here).  Hospitals, physician groups, outpatient centers, post-acute providers, and even insurance carriers are combining with each other in all sorts of ways and at an accelerating pace. Depending on who you talk to in government,  this activity is (1)  paving the way for a new and improved clinically integrated delivery system or (2) paving the way for market dominance by a few big systems in each region that will have no meaningful competitors to constrain prices or drive improvements in quality.

As the thinking goes among many providers, to succeed under value-based payment models (widely believed to be the future of health care), health care organizations will need to build collaborative care models in which providers across the continuum of care jointly share accountability and responsibility for patient care.  Most if not all of the payment reform initiatives in the ACA – ACOs, bundled payments, and medical home demonstrations, to name a few – are ultimately mechanisms aimed at facilitating the formation of these collaborative care models.    

The challenge facing policy leaders and government antitrust enforcers is how to thread the needle between (1) promoting these collaborative models while also (2) protecting competition in the markets.   These two competing objectives are a major fault line in health care reform and could pose significant challenges for hospitals and other provider organizations going forward.  Those competing interests pose the following questions (among others):

  1. To what extent will the antitrust enforcers (the Federal Trade Commission, the Department of Justice, and state Attorney Generals) challenge transactions that are genuinely motivated by efforts to build collaborative care models that can succeed in a value-based payment environment?
  2. Will hospitals and other provider organizations be able to create effective collaborative care models without forming single combined entities?
  3. How large will a health care organization need to be in order to succeed under the value-based payment models of the future (in terms of infrastructure costs, size of workforce, and ability to manage population risk)?
  4. Will the government attempt to lead or follow the market as these dynamics play out?

While at this point there are many more questions than answers, there are a few steps that hospitals can take to minimize the risk of a government challenge.

  • First, the more that an integration project conforms with government policies and programs relating to health care delivery system reform and the promotion of collaborative care models, it would seem that the government will be less likely to challenge it.  For example, integration projects that create new opportunities for participation in government value-based purchasing initiatives, such as ACOs and medical home demonstrations, while not immune from government scrutiny, seemingly would be viewed more favorably by antitrust enforcers.
  • Second, motivations matters.   Are the parties consolidating for the "right" reasons, i.e. reasons that are consistent with the objectives of the Affordable Care Act's delivery system reform initiatives? Or are the parties consolidating mainly for other reasons, such as reasons that could be perceived as anticompetitive in nature (e.g. securing referral streams, eliminating a competitor, enhancing bargaining power with commercial payers)?   Consolidations that are motivated by the "right" reasons are likely to be less attractive targets for enforcement.
  • Lastly, because no two integration projects are the same, hospital leaders need to be cognizant of all the factors that might influence the government's perception of the integration's likely impact on health care markets.  It is important that hospitals work with their advisors to identify these factors and determine what steps can be taken to maximize the chances of a successful outcome.

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