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Wednesday, 07 December, 2016

Healthy Debate: Health System Mergers Shouldn't Surprise Anyone

There is much activity and interest circling health system mergers and there are many opinions, most from economists, about whether these mergers should be allowed. We think folks should look first at the reason for the mergers and then the relative perspectives in assessing the merger diatribe. Not all mergers are bad and some in question are necessary to maintain care given current incentives and penalties.

Let’s begin by acknowledging that the PPACA induced many of these  provider mergers. The PPACA (Patient Protection and Affordable Care Act) was financed by removing half a trillion dollars from the Medicare program, mostly through provider payments reductions. The payment system is composed of a continuum of payment types or bundles: fee-for service (FFS), FFS bundles like OPPS, the DRGs, larger specific episodic bundles like CCJR and per capita costs. The provider system was and is moving along this continuum and the PPACA induced this move.


Given the accumulating provider payment reductions of the PPACA, one clear way for providers to proceed is to scale (via mergers) their activities. This scaling could produce efficiencies or the providers could garner a better position to accept the risk associated with taking on larger bundles or even to assume the role of an insurer. Herein lies the rub. The FTC and others, mostly economists, oppose this scaling because of the enhanced market power of the merged organizations. You are either going to follow the incentives implicit in health reform or you are not. Let’s not confuse the industry here.


If this scaling was going to cause problems, then the FTC and these criticizing economists should have been making those criticisms during the formulation of the PPACA in the first place.  These activities were predictable given the incentives embodied in the PPACA.


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