Tuesday, August 20, 2013

Why The Tipping Point for Health System Consolidation May Be Closer Than We Realize: Lessons from Airline Mergers

Ready for take off
From time to time, the Disease Management Care Blog and other pundits turn to the airline industry draw lessons on the evolution of health careIntegrated human-computer systems, safety check-lists, website-based Expedia-like price transparency, teaming and other such notions have infiltrated health policy PowerPoint presentations worse than Doritos bags in Seattle Hempfest crowd.

While the DMCB was mulling another lesson about the divide between coach (what vanilla insurance could turn out to be) versus business/first class (concierge-style direct pay), along came this interesting Wall Street Journal article by airline industry bad boy Robert Crandall about the American Airlines - US Airways merger.  He argues 1) mergers that lead to bigger are better (no surprise there) and 2) if some airlines are allowed to go big, the only way for others to compete is to go bigger also.

That latter argument is important, and may also hold lessons for health care. 

Mr. Crandall argues that once the furies are released and one or two regionally dominant service providers are allowed to populate the marketplace, smaller competitors are at a disadvantage.  As a result, they have no choice but to also seek alliances and mergers.  How well government reconciles consumer interests and business profitability will remain an open question involving lawyers, bureaucrats and politicians.

Ditto regional health care systems, accountable care organizations and integrated provider organizations. 

Once one of these behemoths is unleashed in a city or corner of a state, smaller neighboring provider systems will naturally circle the wagons and seek permission to consolidate so that, just like the airlines, they can compete. They make a good argument, because without the size, they could go bankrupt. 

As health reform continues, geographically large systems that can access capital, achieve economies of scale, become accountable and take insurance risk will grow in number and complexity. That will only fuel the further consolidation of small local hospitals and smaller physician practices.

In other words, the lesson from the airlines may be that that "tipping point" for nationwide health system consolidation may be much closer than we realize.

Image from Wikipedia


Brettski said...

Heads Up: your headline is wrong. "than" not "that"

Keep on truckin! I did your blog!

Jaan Sidorov said...

Brettski: You're a person with obvious good taste.

I was never good at grammar in school (which is why I gravitated to the sciences) and my blog is riddled with gaffs like this. I really appreciate it when readers point out errors.