Study Spotlights Provider Market Power to Negotiate Higher Payment Rates

March 15, 2010March 17, 2010 J Roberts

Read how physicians and hospitals are joining together to increase their market share and purchasing power to better negotiate more favorable levels of reimbursement. This is a trend to watch, the net results may lead to an increase in health care premiums and out-of-pocket costs.

HFMA

An underlying driver of higher insurance premiums—the growing market power of hospitals and physicians to negotiate higher payment rates—has gone largely unexamined, according to a Center for Studying Health System Change (HSC) study published online today by Health Affairs.

Funded by the California HealthCare Foundation, the study examined the growing market power of many California hospitals and physicians, finding that providers are using various strategies, such as tighter alignment of hospitals and physician groups, to negotiate significantly higher payment rates from private insurers.

“Provider market power is the elephant in the room that no one wants to talk about in the national healthcare reform debate,” said HSC Senior Consulting Researcher Robert A. Berenson, M.D., of the Urban Institute, a coauthor of the study with HSC President Paul B. Ginsburg, Ph.D., and Nicole Kemper, M.P.H., a former HSC research analyst.

“Health insurers have been squarely in the crosshairs and blamed for the high cost of private insurance, while the role of growing hospital and physician market power has escaped scrutiny,” Berenson said.

The study also points out that California offers a cautionary tale for reform proposals that encourage hospitals and physicians to form tighter relationships through accountable care organizations.

“Reform proposals that encourage hospitals and physicians to integrate have the potential to improve quality and increase efficiency, but the savings may not be passed on to private payers if provider market power to command higher prices goes unchecked,” Ginsburg said.

The authors conclude that “unless market mechanisms can be found to discipline providers’ use of their growing market power, it seems inevitable that policy makers will need to turn to regulatory approaches, such as putting price caps on negotiated private-sector rates and adopting all-payer rate setting. Indeed, some purchasers who believe strongly in the long-term merits of increased integration of care delivery believe that price regulation may be a prerequisite for payment reforms that encourage integration.”

Race Is On to Pin Blame For High Health-Care Costs

March 3, 2010 J Roberts

Who’s to blame for rising healthcare costs, insurers or providers, such as doctors or hospitals? Depending who you ask, either side places the blame on the other. Whether it’s insurers’ trying to meet the bottom line and remain profitable or physicians and hospitals attempting to increase revenue and improve their margins, one thing is for certain: Healthcare costs continue to rise.

Read on to determine where the blame lies.

By AVERY JOHNSON

A battle over who to blame for rising health-care costs is escalating, as groups seek to pin the problem on each other and say none of the health-care legislation under consideration does enough to solve it. U.S. spending on health care reached $2.5 trillion in 2009, according to federal estimates. It is expected to jump to $4.5 trillion in 10 years.

Insurers contend that they must pass on ever-higher bills from hospitals and doctors. Hospitals say they are struggling with more uninsured patients, demands by doctors for top salaries, and underpayments from Medicare and Medicaid.

And doctors say they are strong-armed by insurance monopolies and hampered by medical malpractice costs.

In the rush to point fingers, few solutions are emerging.

“It’s always someone else’s fault,” said Robert Laszewski, president of health-care consulting firm Health Policy & Strategy Associates. “There is not an incentive for these people to cooperate because the game they are all playing is getting a bigger piece of the pie.”

The issue has come into sharp relief as WellPoint Inc. has sought to defend its plan to raise some prices in California by up to 39%.

In a hearing Wednesday on Capitol Hill, WellPoint Chief Executive Angela Braly singled out dominant hospital systems for demanding 40% rate increases and drug companies for roughly 20% profit margins.

A WellPoint spokeswoman said that at least one hospital had asked for a 220% payment increase.

Many Democrats have cited lack of competition among insurers as a driver of higher prices. On Wednesday, the House of Representatives voted to repeal a longstanding insurance-industry exemption from federal antitrust laws. The bill now heads to the Senate, where its future is less certain.

Doctors complain of a lack of competition among insurers, as well.

A report by the American Medical Association this week argues that 500 insurance-company mergers in the past 12 years have led to markets dominated by one or two health plans.

This year, two insurers control 70% of the market in 24 states, up from 18 last year, the report said.

“There is no other company for doctors to go to” when an insurer comes to them with terms that they find unfavorable, said AMA President James Rohack. But insurers say is it doctors and hospitals that have gotten too powerful through consolidation.

A study published Thursday in the journal Health Affairs appears to back up their point, saying that insurers are weakened in their negotiations by their inability to exclude prominent doctors and hospitals from networks.

Authors from the Center for Studying Health System Change, a nonpartisan research group, conducted 300 interviews with California doctors and hospital and insurance executives in late 2008.

The study said two big networks of providers now dominate the northern part of the state: Sutter Health owns two dozen California hospitals and medical centers, and Catholic Healthcare West runs 33 hospitals.

In addition, the study said, doctors who are increasingly banding together for negotiating power are commanding yearly double-digit payment increases.

Hospitals and doctors shot back that the study was largely anecdotal and said integration improved efficiency.

Catholic Healthcare West said it took on $1.5 billion in bad debt from government underpayments last year; its size, it added, makes it possible to achieve some savings.

Sutter Health said increases in its reimbursement rates from private insurers have been in the single digits.

“We are doing our best to keep costs down because these health-care premium increases are not sustainable,” said Bill Gleeson, vice president of communications a Sutter Health.

Hospital costs: Pull back the curtain

February 23, 2010February 25, 2010 J Roberts

Read how one state’s governor is not only reviewing insurance rates, but also hospital rates as he and the state look for ways to curtail excessive increases.

If nothing else, Governor Patrick’s proposal for state review of both hospital and insurance rates should start an overdue discussion of how to keep health cost increases from smothering economic growth in the state.

The course advocated by the state’s payment reform commission last year – a move away from fee-for-service payments – may be the long-term solution. But in the meantime, both employers and individuals are facing increases well in excess of the national rate of medical inflation. Forcing both insurers and hospitals to lay out their contract proposals before a rate-oversight body would at least end the shadow play that has kept the public in the dark about wide differences in hospital costs.

Also, Patrick’s proposed requirement that insurers at least offer small businesses a plan with a network lacking some higher-cost hospitals would ensure that companies have that more affordable option. In the past, consumers and their employers have been wary of plans that lack access to marquee hospitals, but years of spiraling health costs have probably changed some minds. Let the debate, or “conversation,’’ as Patrick calls it, begin.