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(ACO) regulations - American Society of Anesthesiologists

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CMS-1345-P 335<br />

protects beneficiary access to a variety <strong>of</strong> providers. Furthermore, competition benefits the<br />

Shared Savings Program by allowing the opportunity for the formation <strong>of</strong> two or more <strong>ACO</strong>s in<br />

an area, which could accelerate advancements in quality and efficiency. All <strong>of</strong> these benefits to<br />

Medicare patients would be reduced or eliminated if we allow <strong>ACO</strong>s to participate in the Shared<br />

Savings Program when their participation would create market power.<br />

b. Competition and Quality <strong>of</strong> Care<br />

Because Medicare prices are regulated, <strong>ACO</strong>s participating in the Shared Savings<br />

Program will not compete on the basis <strong>of</strong> price. Nevertheless, economic theory and competition<br />

policy suggest that these <strong>ACO</strong>s will compete to serve Medicare beneficiaries on the basis <strong>of</strong><br />

nonprice dimensions such as quality <strong>of</strong> care, innovations that improve care, and choice in<br />

treatment options. Empirical studies <strong>of</strong> the Medicare program confirm this theory and<br />

demonstrate that, where prices are fixed, competition among health care providers produces<br />

higher quality for consumers. 22<br />

The most prominent study <strong>of</strong> markets with fixed prices<br />

examined the impact <strong>of</strong> market concentration on mortality for Medicare heart attack patients.<br />

The study found that mortality was significantly higher for patients in more concentrated<br />

markets. 23<br />

A later study had similar findings in that high-risk Medicare patients' heart attack<br />

mortality was higher in highly concentrated markets, while there was no such effect for low-risk<br />

patients. 24<br />

Overall, the evidence suggests that competition in the presence <strong>of</strong> regulated prices<br />

fosters improved quality.<br />

22<br />

See Daniel P. Kessler & Mark B. McClellan, Is Hospital Competition Socially Wasteful? 115 QUARTERLY<br />

JOURNAL OF ECON. 577 (2000); Daniel P. Kessler & Jeffrey J. Geppert, The Effects <strong>of</strong> Competition on Variation in<br />

the Quality and Cost <strong>of</strong> Medical Care, 14 JOURNAL OF ECON. AND MGMT. STRATEGY 575 (2005). See also Abigail<br />

Tay Assessing Competition in Hospital Care Markets: The Importance <strong>of</strong> Accounting for Quality Differentiation 34<br />

RAND JOURNAL OF ECON. 786 (2003).<br />

23 Daniel P. Kessler & Mark B. McClellan, Is Hospital Competition Socially Wasteful? 115 QUARTERLY JOURNAL<br />

OF ECON., 577 (2000).<br />

24 Daniel P. Kessler & Jeffrey J. Geppert, The Effects <strong>of</strong> Competition on Variation in the Quality and Cost <strong>of</strong><br />

Medical Care 14 JOURNAL OF ECON. AND MGMT. STRATEGY, 575 (2005).

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