Association for Public Policy Analysis & Management

Panel: Competition and Integration in Health Care Markets

(Health Policy)

There is a consensus among policymakers and scholars that competition in health care markets is a cornerstone for improving quality and reducing costs. Concurrently, coordination of health care services across the “continuum” of care is increasingly a focus of payment and delivery system reform, with similar goals of improving value by increasing quality and reducing costs of care. “Vertical integration" between insurers and physicians and between hospitals and physicians has been proposed as a means of achieving coordination of care, however, this type of integration also raises concerns about the potential for consolidation, resulting in higher prices.

In this panel, we explore several perspectives on vertical integration in health care. The first paper documents trends over time in vertical integration between physician practices and hospitals and explores how this type of integration varies across physician specialties. The second paper studies the effects of vertical integration between physicians and hospitals on quality of care and finds little evidence that patients of vertically integrated physicians receive more appropriate or higher quality care, compared to patients of non-integrated physicians. This suggests the importance of competition policy in healthcare markets, if the problematic spending- and price-increasing effects are unlikely to be offset by an increase in the value of care provided by vertically integrated providers. The third paper approaches this topic by considering consolidation as a result of a federal policy. Specifically, the authors show that an unintended consequence of a federal drug discount program was increased hospital-physician consolidation and drug spending. The final paper presents a study of the relationship between insurer-physician integration and plan quality, providing evidence that increased integration was associated with higher plan quality. The panel includes a discussant from the Federal Trade Commission Antitrust Division.

These studies suggest that understanding the costs and benefits of integration - and how integration and competition interact - will require deeper analysis of its direct and indirect effects. The papers in this panel lend insight into the complexities of promoting integration and ensuring that these efforts do not have unintended consequences. Given rising interest in competition and alternative payment and delivery models for health care which focus on care coordination, it is increasingly important to understand the potential benefits and costs of integration. The findings from the four papers in this panel are highly relevant to policy debates on this topic and have the potential to inform the design of such models going forward.