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WASHINGTON -- What is driving consolidation in healthcare? The answer is: consolidation, Erin Fuse Brown, JD, MPH, said Tuesday.

"If all of the other competitors in the market are getting bigger, then in order to survive -- if you're a community hospital, or you're a small physician group -- you need to also join something big and powerful," Brown, who is professor of law at Georgia State University in Atlanta, said at an event here sponsored by the Georgetown University Center on Health Insurance Reforms.

"The bigger you are, the more pricing power you have in the commercial market," she continued. "That means you can command higher prices, you can get more revenue -- you're more powerful when you sit down at the negotiating table with those insurance companies ... Something that is small can no longer compete."

And adding value-based payment incentives, well-meaning though they may be, just "pours gasoline on the fire," said Brown, who is soon to become professor of health services policy management at Brown University in Providence, Rhode Island. Under value-based payment, "in order to assume the financial risk of caring for a defined population of patients, you need to be big."

There are several reasons for that, she said. "You need to be big enough to invest in the health information technology to track the data, measure the quality metrics, and report. And you need to be big because that's how insurance works. You can't spread risk among a small group. You need a big population. You need a big group of patients in order to be able to make it financially manageable."

But even as healthcare entities grow larger, the competition needs to be fair, according to Charles Miller, senior policy advisor at Texas 2036, a Dallas organization working to improve healthcare accessibility and affordability in the state.

"One of the things that we did our last legislative session was to pass a bill to prevent certain anti-competitive contracting clauses," he said. Those included "anti-steering" and "anti-tiering" clauses that prevent insurers from using financial incentives to steer patients to less expensive or higher-quality providers. It also included "most favored nation" clauses, which allow insurers to stop providers from offering a lower price for their services to anyone else.

David Seltz, executive director of the Massachusetts Health Policy Commission, in Boston, said that his organization is trying to improve competition through a better understanding of the current system. "We're trying to collect information about health systems and who they are, who are they contracted with, and what are their governance structures and finances," he said. "It's not easy information to get or understand."

Health systems in the state that are planning to do a transaction -- like a sale or purchase of another health system -- have to notify the commission so it can perform a review, Seltz said. "They can't move forward with the transaction while we're conducting the review." The commission doesn't have the authority to block or deny a transaction, but it does report on what the potential impacts will be on the state's healthcare system, he said. "Our reports have been used by [the state] attorney general's office in their enforcement authorities," and in some cases the parties decide not to go ahead with their transactions.

Transparency remains a big issue for anyone trying to make healthcare competition more fair, the panelists agreed.

Take the issue of hospitals that charge "facility fees" for services provided in physician practices that they have bought. "People are going to the same doctor they've always been to, and all of a sudden that [practice] gets bought up by a hospital system, and now they're getting charged a facility fee for what used to just be a regular doctor visit," Miller said. "When we've talked to our employers and our insurers in the state, they say that they actually don't have enough information on their claim form" to know whether the service was provided in an outpatient facility or on the hospital's main campus.

"So one of the 'light touch' approaches that we're going to take on this is actually just require kind of honest billing, so when you submit your claim form, you say where the site was," he said. "Maybe that light touch can help resolve the problem just by providing more information."

Medicare -- which currently pays more for services provided in hospital-affiliated locations than in independent doctors' offices -- is looking at "site-neutral" payment in which it would pay the same amount for a particular item or service regardless of where the service was provided, said Brown, noting that states are also becoming interested in that idea. Right now, states can't tell where a service was provided because hospitals will bill under a single provider number regardless of the service location.

However, one problem states have when they try to collect health insurance data or regulate health plans is that many employer health plans -- for companies that have employees in more than one state -- are governed by a federal law known as the Employee Retirement Income Security Act, or ERISA, and state laws don't apply to them, Brown said.

"If you want to get at contracting practices, because of the breadth of ERISA preemption, states have very limited tools," she said. "States have not only missing data, but they're missing leverage over a very critical chunk of the commercial market. There is a huge blind spot there."

Miller agreed, adding that sometimes ERISA even prevents employers from getting claims information about their own employees. "We hear from employers who want to create innovative benefit designs. They ask for their own employees' data from third-party administrators" -- the companies who do the paperwork for many employer health plans -- but the administrator declines to provide it to them, saying it's proprietary. "As a state, we can't go and regulate that; that is something that needs to be legislated by Congress," he said. "That is a uniquely congressional problem."

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