When it comes to health care costs, number of marketplace competitors matters less than type

Competition isn’t the only factor in the end-cost of health care; instead, the more a market is fragmented, the higher costs tend to be.

That’s according to a report from the Healthcare Financial Management Association, Leavitt Partners and McManis Consulting, with support from the Commonwealth Fund, that looked at cost indicators using commercial data from 2012 to 2014, and Medicare data from 2007 to 2015.

The HFMA report points out that the number of competitors in a market isn’t as important as the type of competitors. Lower-cost markets, according to the report, “appear to benefit from competition among healthcare systems with well-organized provider networks and geographic coverage across their market.” In addition, it adds that competition among health plans looks like “a significant factor, especially with respect to encouraging innovation in payment models and plan design within a market.”

An article from Modern Healthcare quotes James Landman, director of health care finance policy at the HFMA: “Lower-cost markets tend to have good mechanisms for sharing information and good information sources.” He gives the examples of Minneapolis/St. Paul, with a prominent state-run not-for-profit group, and Billings, Montana, where employers work with third-party administrators and consulting firms to understand costs of care across providers. Says Landman, “There was very good information flow between significant care purchasers.”

The impact of health plan and hospital concentration is statistically significant in predicting baseline total cost of care and growth in costs, the report says, but that impact doesn’t measure up to the effects of other factors, such as environmental conditions related to average daily temperature, metropolitan settings compared with rural ones and the proportion of patients who have chronic diseases.

There are higher costs in more fragmented markets, the report finds, with independent specialty physician groups directly competing with health systems; so do specialty surgical facilities or hospitals.

In addition, value-based payment models haven’t achieved much penetration in a number of markets, since many providers only take on upside risk and aren’t willing to increase that risk considering that such programs are voluntary and physician compensation packages aren’t structured to fit in. There aren’t enough incentives, says the HFMA report, to manage total costs of care, and that’s impeding any broad-based changes to how care is delivered.

The report suggests that health care should continue to move “toward models that increase financial incentives to manage total cost of care and closely monitor the impacts of doing so.” In addition, it adds that the benefits of competition should be balanced with the benefits of integration and the industry should support more transparent sharing of health care cost and quality data within markets.