Abstract

The need for more coordination across health care settings is taken as self-evident. Fragmented payment systems and setting-specific incentives and information technology are often blamed for fragmented health care. Mounting evidence from the medical and health services literature suggests that fragmented care is unsafe for patients and expensive for the health care system. Accordingly, policies and interventions to increase coordination have become increasingly prevalent. In the United States, recent health care reform under the Affordable Care Act established Medicare Accountable Care Organizations (ACOs) where payers and providers take on responsibility for managing the health of their members across health care settings and are financially accountable for providing high-quality and low-cost care. Other examples of payment reforms that encourage coordination include bundled payments, which combine payments across provider settings for a single episode of care, and financial penalties for hospitals with higher-than-expected readmission rates, intended to encourage hospitals to monitor post-discharge care. These policies are likely to create new incentives for providers to optimize care across health care settings, potentially through integration.

However, economists have long thought of integration as a double-edged sword: Theoretically, it can serve to achieve efficiencies by facilitating coordination of care and better allocation of resources across settings. On the other hand, it can be anti-competitive: Integrated providers refer patients to, and accept patients from, within the integrated system, thus limiting consumer choice and limiting access to referrals by providers outside the integrated system. With less competition, incentives for quality and efficiency may be blunted. Thus, while integration is expected in response to emerging policies encouraging coordination, the result may not be higher quality or lower costs.

In this presentation, the policy context of integration, the theoretical underpinnings, and the empirical evidence on the economics of integration in health care settings will be reviewed and summarized. The result is that the benefits of integration are far from self-evident. The achievement of the goals of increased coordination depends on the underlying payment policy, the strength of the incentives facing providers, and the countervailing anti-competitive effects of consolidation.

Slides