Tasneem Chipty, May 12, 2011
Health care markets involve a complex interaction of facilities, physicians, and health plans to deliver patient care. Under ideal circumstances, the forces of competition would lead inevitably to appropriate, high quality patient care at low prices. The competitive process, however, requires sufficient flow of information and aligned incentives. Absent these conditions, the competitive process can (and has been known to) break down. Indeed, the last decade has seen a dramatic increase in the United States’ cost of health care as a percentage of gross domestic product. Health care commentators trying to understand this growth have pointed to increases in the price and use of certain services, which they attribute to a number of factors such as an aging population and at times, use of unnecessary care and insufficient competitive pressure. To address some of these issues, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 encourage providers to better coordinate patient care through competitor collaborations called Accountable Care Organizations (“ACOs”).
By incenting otherwise independent health care providers (through the Medicare Shared Savings Program) to better coordinate on patient care, the policy goal is to improve the quality and reduce the cost of health care. Unchecked, however, the same policy could facilitate competitor coordination on pricing and other aspects of behavio