Empire‌ ‌building‌: Health care consolidation‌ ‌in‌ ‌six‌ ‌markets‌ ‌

As health systems increase market clout, employers' strategies to keep costs down become less effective.

Excluding‌ ‌high-cost-providers‌ ‌is‌ ‌difficult‌ ‌in‌ ‌consolidated‌ ‌markets‌ ‌where‌ ‌those‌ ‌providers‌ ‌may‌ ‌be‌ ‌the‌ ‌only‌ ‌option. (Photo: Shutterstock)

A‌ ‌new‌ ‌report‌ ‌shows‌ ‌hospital‌ ‌and‌ ‌health‌ ‌systems‌ ‌are‌ ‌continuing‌ ‌to‌ ‌consolidate,‌ ‌driving‌ ‌up‌ ‌prices,‌ ‌and‌ ‌finds‌ ‌that‌ ‌strategies‌ ‌to‌ ‌hold‌ ‌down‌ ‌those‌ ‌costs‌ ‌have‌ ‌had‌ ‌limited‌ ‌effects.‌ ‌ ‌ ‌ The‌ ‌report,‌ ‌by‌ ‌‌Georgetown‌ ‌University’s‌ ‌Center‌ ‌on‌ ‌Health‌ ‌Insurance‌ ‌Reforms‌‌ ‌(CHIR),‌ ‌looked‌ ‌at‌ ‌six‌ ‌mid-sized‌ ‌markets.‌ ‌The‌ ‌researchers‌ ‌point‌ ‌to‌ ‌rising‌ ‌provider‌ ‌prices‌ ‌as‌ ‌a‌ ‌key‌ ‌factor‌ ‌driving‌ ‌health‌ ‌care‌ ‌cost‌ ‌increases‌ ‌in‌ ‌the‌ ‌U.S.‌ ‌

“Annual‌ ‌family‌ ‌premiums‌ ‌have‌ ‌now‌ ‌surpassed‌ ‌$20,000,‌ ‌and‌ ‌the‌ ‌average‌ ‌annual‌ ‌deductible‌ ‌has‌ ‌increased‌ ‌100‌ ‌percent‌ ‌over‌ ‌the‌ ‌last‌ ‌10‌ ‌years,”‌ ‌the‌ ‌report‌ said.‌ ‌“While‌ ‌policymakers‌ ‌have‌ ‌focused‌ ‌attention‌ ‌on‌ ‌rising‌ ‌health‌ ‌insurance‌ ‌premiums‌ ‌and‌ ‌out-of-pocket‌ ‌costs‌ ‌(for‌ ‌employers‌ ‌and‌ ‌employees‌ ‌alike),‌ ‌provider‌ ‌consolidation—and‌ ‌its‌ ‌role‌ ‌as‌ a‌ ‌major‌ ‌health‌ ‌care‌ ‌cost‌ ‌driver—has‌ ‌received‌ ‌less‌ ‌attention.”‌ ‌

Related: How broker consolidation and industry alliances are changing the industry

The‌ ‌report‌ ‌noted‌ ‌that‌ ‌in‌ ‌ninety‌ ‌percent‌ ‌of‌ ‌metropolitan‌ ‌areas,‌ ‌the‌ ‌provider‌ ‌market‌ ‌is‌ ‌highly‌ ‌concentrated.‌ ‌According‌ ‌to‌ ‌the‌ ‌report,‌ ‌hospital‌ ‌mergers‌ ‌have‌ ‌been‌ ‌found‌ ‌to‌ ‌increase‌ ‌prices‌ ‌of‌ ‌services‌ ‌by‌ ‌6‌ ‌percent‌ ‌to‌ ‌40‌ ‌percent.‌ ‌

“Although‌ ‌merging‌ ‌hospitals‌ ‌and‌ ‌health‌ ‌systems‌ ‌claim‌ ‌they‌ ‌can‌ ‌achieve‌ ‌greater‌ ‌efficiencies‌ ‌and‌ ‌better‌ ‌care‌ ‌coordination‌ ‌through‌ ‌their‌ ‌consolidation,‌ ‌the‌ ‌economic‌ ‌literature‌ ‌almost‌ ‌universally‌ finds‌ ‌that‌ ‌hospitals‌ ‌that‌ ‌merge‌ ‌charge‌ ‌prices‌ ‌above‌ ‌those‌ ‌of‌ ‌surrounding‌ ‌hospitals,”‌ ‌the‌ ‌report‌ ‌said.‌ ‌“At‌ ‌the‌ ‌same‌ ‌time,‌ ‌increased‌ ‌market‌ ‌concentration‌ ‌is‌ ‌strongly‌ ‌associated‌ ‌with‌ ‌lower‌ ‌quality‌ ‌care.”‌ ‌

The‌ ‌power‌ ‌of‌ ‌consolidation‌ ‌

The‌ ‌report‌ ‌finds‌ ‌similar‌ ‌conditions‌ ‌in‌ ‌all‌ ‌six‌ ‌of‌ ‌the‌ ‌markets,‌ ‌saying‌ ‌that,‌ ‌“hospitals‌ ‌and‌ ‌hospital‌ ‌systems‌ ‌in‌ ‌our‌ ‌studied‌ ‌markets‌ ‌have‌ ‌engaged‌ ‌in‌ ‌various‌ ‌forms‌ ‌of‌ ‌empire‌ ‌building.”‌ ‌ ‌ With‌ ‌the‌ ‌market‌ ‌clout‌ ‌that‌ ‌they’ve‌ ‌gained,‌ ‌these‌ ‌health‌ ‌systems‌ ‌can‌ ‌seek‌ ‌higher‌ ‌reimbursement,‌ ‌the‌ ‌report‌ ‌said.‌ ‌Payers‌ ‌have‌ ‌attempted‌ ‌to‌ ‌hold‌ ‌down‌ ‌costs—but‌ ‌the‌ ‌effectiveness‌ ‌of‌ ‌those‌ ‌strategies‌ ‌have‌ ‌been‌ ‌limited‌ ‌at‌ ‌best.‌ ‌Insurers‌ ‌have‌ ‌mixed‌ ‌incentives,‌ ‌especially‌ ‌with‌ ‌self-insured‌ ‌employer‌ ‌plans‌ ‌that‌ ‌pay‌ ‌them‌ ‌a‌ ‌percentage‌ ‌of‌ ‌overall‌ ‌costs.‌ ‌ Excluding‌ ‌high-cost-providers‌ ‌is‌ ‌difficult‌ ‌in‌ ‌consolidated‌ ‌markets‌ ‌where‌ ‌those‌ ‌providers‌ ‌may‌ ‌be‌ ‌the‌ ‌only‌ ‌option.‌ ‌Cost‌ ‌containment‌ ‌tools‌ ‌such‌ ‌as‌ ‌limited‌ ‌networks‌ ‌are‌ ‌unpopular‌ ‌with‌ ‌consumers‌ ‌and‌ ‌often‌ ‌bring‌ ‌negative‌ ‌publicity.‌ ‌ ‌ ‌ “Employers‌ ‌were‌ ‌typically‌ ‌not‌ ‌willing‌ ‌to‌ ‌restrict‌ ‌their‌ ‌employees’‌ ‌choice,‌ ‌with‌ ‌several‌ ‌noting‌ ‌that‌ ‌the‌ ‌savings‌ ‌rarely‌ ‌outweigh‌ ‌the‌ ‌perceived‌ ‌limits‌ ‌on‌ ‌employees’‌ ‌choices,”‌ ‌the‌ ‌report‌ ‌said.‌ ‌Plans‌ ‌with‌ ‌tiers‌ ‌promoting‌ ‌lower-cost‌ ‌providers‌ ‌have‌ ‌been‌ ‌tried,‌ ‌but‌ ‌that‌ ‌approach‌ ‌requires‌ ‌competition‌ ‌in‌ ‌the‌ ‌market—plus‌ ‌data‌ ‌on‌ ‌cost‌ ‌options‌ ‌in‌ ‌real‌ ‌time.‌ ‌Such‌ ‌data‌ ‌is‌ ‌not‌ ‌easily‌ ‌available‌ ‌to‌ ‌consumers.‌ ‌ ‌

The unsustainable solution: cost-shifting

The report finds that in current markets, employers are unable or unwilling to push back on rising provider prices and instead have shifted costs to employees. “Across our six markets, the most widespread strategy among employers to constrain their health plan costs has been to shift them to employees, largely through higher deductibles,” the report said. “At the same time, several employer respondents in our study markets observed that this cost-shifting strategy may have been tapped out, noting that many of their employees can no longer afford the deductibles.”

Other cost-containment strategies also have drawbacks. Wellness programs have become notorious for failing to show return on investment. Direct contracting with providers has had some success in markets such as Detroit and Indianapolis but has been limited to large employers.

Regulators such Federal Trade Commission, state legislatures, and attorneys’ generals also are beginning to look at rising health costs in consolidated markets. Again, the outlook for reform is uncertain.

“Misaligned incentives among commercial payers and the ‘must have’ status of many hospital systems mean that market-based tools to hold health care costs down have been largely ineffective or difficult to replicate,” the study said. “And, with 90 percent of markets in the country already highly consolidated, the prospect of greater anti-trust enforcement is ‘too little, too late.’”

The researchers said more data sharing is crucial to cost-containment efforts. It predicts if solutions aren’t found to higher health care prices, more dramatic steps such as rate-setting could become popular. “The status quo is no longer an option for most employers, and certainly not for their employees, who are bearing an ever-greater burden of the cost of care,” the report concluded.

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