Paradigm lost: provider concentration and the failure of market theory.

Overview

In classic market theory, increased concentration among providers leads to higher prices for consumers. In the world of contemporary health policy, many stakeholders echo the classic market theory, blaming high health care prices on the increased concentration of providers, such as occurs when hospitals merge or are acquired by other hospitals. Thus, the consolidation of providers has become a convenient target for policy makers who want to be viewed as actively pursuing solutions to the growth in health care spending. Yet many of the factors fueling increased provider concentration are widely believed to be desirable, or practically unavoidable. Meanwhile, health care prices are increasing at historically low levels. Thus, there appears to be a contradiction between efforts to contain health care prices and the fact that aggressive policies aimed at reducing provider concentration might be ineffective and could even have the unintended effect of stunting positive developments. In a group of Health Affairs articles, William Sage and Paul Ginsburg and Gregory Pawlson respond to this conundrum by proposing a range of policy alternatives that, in this author's opinion, are either impractical or counterproductive because they have their roots in classical economic models of an industry with pervasive market failure. More effective and practical responses may be less theoretically elegant but more realistic and more reasonable.