Consolidation. Innovation. Can we have it both ways?

By Mark Thill

Talk about consolidation. BD and CareFusion, Biomet and Zimmer, Medtronic and Covidien. And that’s just on the supplier side. How about the hospital/IDN mergers that continue to take place? Here in Chicago, we see Advocate Healthcare joining with NorthShore University Health System to create a 16-hospital IDN. Every JHC reader can cite examples in his or her geography as well. GPOs? How many are left standing?

Physicians? Many are either joining IDNs or grouping up to form what some are calling “supergroups.” And payers? According to the American Medical Association, just one insurer accounted for more than 50 percent of the market in 15 states, and just two health insur ance organizations accounted for more than 50 percent of the health insurance market in 45 of the 50 states.

There was plenty of talk about consolidation this fall on the Journal of Healthcare Contracting’s LinkedIn page. Many of the posts
– from both suppliers and providers – boiled down to this: If consolidation continues (which most agree it will), what happens to innovation in medical devices and equipment? As suppliers get bigger, will they focus on developing innovative devices, or will they spend more time protecting market share? Similarly, as IDNs expand, will they have the time and energy to scrutinize innovation, or will they focus their energies on holding down costs and maintaining – or building – market share in their region?

Some of the posts:

IDN supply chain executive: “Very large companies with majority market share do not drive competition or innovation. Look at the PC when IBM owned the market, the telephone when there was the Bell monopoly, and airline prices before deregulation. Sustained competition drives marketplace innovation and lowers costs to the consumer.”

Consultant: “When there are too few suppliers, like IV solutions, there is a strong temptation (I am not accusing any company, but want to put this out here) for two suppliers to ‘keep hands off each other’ during bidding processes and the like. If the business is pretty much divided, why invest heavily in marketing