When Bigger Isn’t Better

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Cat VaskoIt seems that I was not the only one alarmed by “Bitter Pill,”¹ about which I wrote in my commentary last month. In a meeting the week after the article hit newsstands, the discussion of the American Enterprise Institute (AEI) about hospital consolidation took a turn for the accusatory, with the pro–free-market organization concluding that the hospital market is broken.

The problem, the AEI’s panelists posited, is that mergers between not-for-profit hospitals were approved by judges who would never have signed off on similar arrangements between for-profit businesses for fear of creating monopolies or oligopolies. Unfortunately, these regulators misjudged the situation; instead, the lack of competition and constant demand enable growing health-care systems to charge ever-higher prices. The Federal Trade Commission (FTC), for what it’s worth, appears to have wised up to the problem, challenging a hospital merger in Georgia that would have resulted in a monopoly.

The hospital sector has seen more than 1,000 merger/acquisition deals in the past two decades—a trend that the panelists associated with escalating health-care costs. This might be a false correlation, as the number of mergers has been on the decline since 2006; the truth might be that the opportunity has slackened, but the effects are still being felt.

Contrast this perspective against that offered by Gawande² in his article for The New Yorker, “Big Med.” In that piece, Gawande wonders why health care can’t be more like national chain restaurants, with large-scale mechanized production to limit the potential for human error while reducing costs. The analogy sounds specious, at first blush, but the idea is not so different from the application of Toyota Production System (or lean) methods to health care—and as we’ve established, those approaches can yield dazzling results. It’s easy, then, to understand why health-care reform effectively creates incentives for the formation of larger and larger provider organizations, even if the growing pains are a textbook example of the law of unintended consequences.

Many of you have written to me with stories of hospital consolidation in your local markets—consolidation that threatens your businesses by establishing duopolies or oligopolies with enough market clout to shut out independent practices. Even if the FTC can be relied upon to step in when monopolies form, oligopolies are a hallmark of capitalism, and we can only expect the trend to continue if accountable care actually takes root.

The only possible answer to the problem is for practices to gain their own market clout by aligning themselves with other imaging providers, either through mergers/acquisitions or as affiliates that continue to enjoy some degree of autonomy while banding together in negotiations with health systems and payors. This kind of strategic realignment is no longer an option, in many markets: It’s an imperative. Bigger can be better, but when you’re on the outside looking in, it’s not.

Cat Vasko is editor of ImagingBiz.com and associate editor of Radiology Business Journal.