ACO + global payments --> Market dominance?

Is the move towards accountable care organizations and capitated (aka, global) payments likely to reduce health care costs and insurance premiums, or will it do the opposite? Being an economist, my answer will be, "On the one hand . . . On the other hand . . ."

On the one hand, ACOs offer the potential for a better integration of care across the spectrum of primary care, hospitalization, skilled nursing, rehabilitation, and hospice. If the ACO faces an annual budget per patient under a capitated payment scheme, there is an incentive to avoid unnecessary tests and procedures and also to help direct patients to the most cost-effective component of the health care continuum.

On the other hand, if an ACO becomes the dominant provider in a region and especially if it has a electronic health record that is not interoperable with others in the region, that ACO will have substantial market power and will negotiate a higher global payment than would occur in a more competitive marketplace.

As noted here:

The federal Patient Protection and Affordable Care Act is looking for $500 billion in savings over the next decade to help pay for extending coverage to 32 million uninsured Americans. Yet it doesn’t address the problem of market concentration -- and may make it worse, said Robert Berenson, a physician and policy analyst at the Urban Institute in Washington D.C.

I suspect that the tools used by the Federal Trade Commission will be ineffectual in most regions. For one thing, ACOs will not always be created by corporate consolidation, the usual vehicle for FTC review. For another, the usual metrics used to study market dominance, like the Herfindahl-Hirschman Index, are not particularly effective in evaluating a market characterized by many discrete lines of business. Medicine is not one service. It has multiple pathways for patient entry and egress, covering a huge number of clinical conditions.

Here in Massachusetts, we have a dominant provider that has been able to demand high reimbursement rates because even the dominant insurer has been unable to withstand its market power. We have seen little political will on the part of the government, or commercial interest on the part of insurers, to attack that source or use of market power.

How much stronger will the dominant firm be allowed to become once insurers and the government encourage it to be an ACO? What if it enters into a referral relationship with the second largest provider network, combining the market power of the two largest groups? What will stand in the way of that dominant provider, alone or with its new affiliate, from demanding a global payment in excess of other market participants?

On the other hand, maybe everything will turn out fine.