Jim Jaffe, is a former Congressional staffer who worked on economic, tax and health policy issues for nearly two decades. After leaving the Hill, he led the external relations efforts for the Employee Benefits Research Institute and the Center for Advancing Health.  He currently writes for CenteredPolitics.com, a web discussion on public policy and politics and the Huffington Post.    

Some broad questions about how bad it is to be big are raised by the government’s new antitrust suit against Blue Cross Blue Shield of Michigan, which allegedly used its market dominance to force hospitals to charge other insurers a third more than the insurance giant paid.  One can see how this could help the nonprofit Blues control the market, but it is difficult to determine how this was in the public interest – or even advantageous to those it was covering.

Not surprisingly the insurer sees things a bit differently and may explain its perspective in court.  I hope there will be a public discussion – rather than a quiet negotiated settlement – and that it will touch on some of the larger issues involved — how health care providers, including physicians, hospitals and insurers have been bulking up to exert greater market control, whether that apparently unstoppable trend is a good or bad idea and what links, if any, it has to the “too big to fail” argument we’ve seen raised and then ignored in the financial services industry in the past year.

Everyone agrees that coming health reforms will lead to greater concentration in the delivery of medical care, accelerating an ongoing process.  That’s a development that can make things better or worse, which is why I think it’s worth thinking about what we can do to assure that the change is for the better.

Let’s begin by looking at the positive side of bigness.  An insurer – like the Michigan Blues – that controls much of the market can negotiate tough deals for lower reimbursements that can result in lower premiums for the insured population.  It also has the power to impose protocols by refusing to deal with providers – or penalizing them – if they don’t meet certain quality standards.  They also have access to rafts of data which can be helpful in determining what type of medical care works best.  A large physician group can more readily afford the costs of electronic medical records and 24-hour patient access.  And a hospital with more beds can buy in bulk or afford the administrative personnel needed to plan and implement an effective quality control program.

These are real advantages that can’t be wished away by gauzy memories of Norman Rockwell-painted solo family doctors who didn’t have aggressive billing offices.  In any event, solo practitioners – whether doctors or lawyers – are disappearing because of larger changes within our society, including the relentless embrace of greater specialization.

But acknowledging the positive side of bigness doesn’t eliminate the obvious potential problems, including those raised by the government in its suit.  Not only can insurers distort the market in a way that hurts consumers, but providers can do the same.  As hospitals in the Washington area have become more concentrated, each of the resulting groups has more clout in negotiating with insurers to force them (and ultimately those they insure to pay more).  A few years ago, for instance, it might have been possible for a bold insurer to threaten to remove Georgetown University’s hospital from its preferred provider list unless it received a heavily discounted reimbursement rate.  But barring Medstar, Georgetown’s parent that also owns Washington Hospital Center and the National Rehabilitation Center, is probably impossible.  Johns Hopkins is creating a hospital chain of its own in the Washington-Baltimore area.

Such entities may be more likely to eliminate unneeded beds than independent competitors are, but they also have much greater economic power, which reduces the power of patients and the insurers who loosely represent them.

In the broader world, the “too big to fail” cloud continues to hover with the implicit threat the government would be forced to prop up any entity – be it insurer, hospital group or, conceivably, a large physician group practice – that ran into serious difficulty.  That again raises the moral hazard issue that arises when such entities use the reassurance that they won’t be allowed to fail to justify risky business strategies.

Upcoming health reforms will accelerate concentration within medicine.  It might be prudent to chew over some of these broader questions now before the trend picks up irreversible momentum.