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Hearing Witness: PPACA Is Scaring Capital Away from Health Services

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Will full implementation of the Patient Protection and Affordable Care Act of 2010 (PPACA) increase competiton in the health care market or decrease it?

Witnesses debated that question today at a hearing organized by Rep. Lamar Smith, R-Texas, chairman of the House Judiciary Committee subcommittee that handles issues involving competition.

Dr. Scott Gottlieb, a resident fellow at the American Enterprise Institute, Washington, argued that PPACA will reduce the level competition and the overall supply of health care, by turning doctors into salaried, less productive wage slaves and reducing the supply of capital entrepreneurs need to create new and better ways to deliver health care.

Traditionally, venture capitalists have helped entrepreneurs develop innovations such as health maintenance organization plans and long-term care hospitals, Gottlieb said, according to a written version of his testimony posted on the committee website.

In some cases, Gottlieb said, the entrepreneurs have profited by moving patients to lower-cost settings, from high-cost settings, and taking a share of the savings.

“PPACA contains deliberate provisions aimed at regulating returns on invested  capital, discouraging different forms of entrepreneurship,” Gottlieb said. “These provisions are, in  many cases, the expression of a political philosophy that guides a number of  provisions in PPACA. That philosophy views profits earned on the provision of care  as money that should have been channeled instead into direct patient care. The result is that entrepreneurs are not pursuing new health services ventures. Capital flowing to these endeavors has fallen sharply. The lack of incentive for  entrepreneurs further entrenches existing players, meaning that tools that could  help better coordinate care (for example, health care information technology) is only  adopted through outright subsidies to existing providers, rather than through the  creation of new approaches to replace an existing way of delivering care.”

Thomas Greaney, a health law researcher at St. Louis University, said that PPACA ought to increase competition, and that the laws and regulations now governing the U.S. health care system have been reducing the level of competition for years.

“In 1990, the typical person living in a metropolitan statistical area (MSA) faced a  concentrated hospital market with an HHI [the index of concentration used in antitrust  cases] of 1,576,” Greaney said, according to his written testimony. “By 2003, however, the typical MSA resident faced a hospital market with  an HHI of 2,323. This change is equivalent to a reduction from six to four competing  local hospital systems.”

Hospital market concentration is the result of various “merger waves” facilitated by erroneous court decisions and lax antitrust enforcement, Greaney said.

“Horizontal” combinations between rivals hurts competition, but vertical integration of hospitals and physicians is a good kind of integration that can reduce fragmentation of care, increase the quality of care, and generally increase the level of competition between the vertically integrated organizations, Greaney said.