Will Your Merger Pass the Smell Test?
"You're asking about a pet peeve of mine," Capps says. "There is a sense in the face of health reform that consolidation can be good, but they forget the fallacy of composition that goes like this: Some consolidation is good, this is consolidation, and therefore this is good. But the preponderance of coordinated care failures are failures of vertical relationships to coordinate effectively."
It's the horizontal mergers that don't require such retooling of work processes and responsibilities to be successful that attract unwanted FTC attention, while vertical consolidation failures can be related to operational performance, he says.
"For instance, primary care has incentives that don't reduce hospitalizations. Or hospitals have a hard time getting physicians to comply with evidence based medicine," he says. "In those cases, you're not talking about problems with competitors but problems with complements."
By contrast, "both hospitals in Rockford own physician groups, so they're really competitors," he says. "They're on the same point on the care continuum and they're a horizontal merger of substitutes because they're serving the same customers and their consolidation might have anticompetitive effects."
He says further that hospital advocates fail to recognize the difference between the two models, and that in reality, the FTC is not thwarting Congress and CMS in their drive to encourage some consolidation in the industry.
"Consolidation in health reform is focused on promoting vertical integration, not horizontal," Capps says. "When people say the FTC is thwarting CMS and Congress, they're ignoring this distinction. Four [FTC challenges] in four years is pretty small overall."
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