AHIP today responded to the American Medical Association’s latest study on health insurance market competition:
“This is the same fatally flawed study that has consistently been debunked by leading health care economists. A former staff economist at the Antitrust Division of the Department of Justice found that these data ‘are plagued by a number of significant limitations’ and ‘fail basic checks of accuracy and reliability.’ Economists at Northwestern University and Yale School of Management noted that publicly-available data ‘omit important components of the market such as self-insured health plans’ and found that ‘analysts cannot currently generate accurate empirical analyses of competition in the health insurance industry using readily-available market share data.’”
“Families and employers in every state have multiple choices of both insurance plans and types of coverage. Moreover, research clearly demonstrates that provider consolidation – not concentration of health plan markets – is driving up health care costs for consumers and employers.”
Analysis: AMA data is limited and unreliable
AHIP previously submitted a report to the DOJ and FTC on the Horizontal Merger Guidelines Review Project that calls into question the data previously released by the AMA. The paper, Federal Health Plan Merger Enforcement is Consistent and Robust, was written by Cory Capps, PhD, of Bates White, LLC, who is a former staff economist at the Antitrust Division of the Department of Justice. He found that the data used by the AMA on health plan concentration “are plagued by a number of significant limitations” and “fail basic checks of accuracy and reliability.” For example, the AMA data exclude some types of self-funded plans, a large and growing portion of the market, and show significantly higher market concentration than data available from the National Association of Insurance Commissioners.
Journal Article: Current data on health plan competition is flawed:
An article in the B.E. Journal of Economic Analysis & Policy, entitled “Data Impediments to Empirical Work on Health Insurance Markets” authored by economists at Northwestern University and Yale School of Management, examined publicly-available data used to study competition in the health insurance industry. One of the authors of the article, Fiona Scott Morton, is now the Deputy Assistant Attorney General for Economic Analysis at the Department of Justice. The article found that “publicly-available sources of data on health insurance market shares are unreliable. They show great variability across years relative to both a reasonable prior and to the variability exhibited in hospital discharge data and do not reflect merger activity. In addition, they omit important components of the market such as self-insured health plans.” The article concludes by saying “that researchers and antitrust analysts cannot currently generate accurate empirical analyses of competition in the health insurance industry using readily-available market share data.”
Provider consolidation drives up prices:
Research clearly demonstrates that provider consolidation – not concentration of health plan markets – is driving up health care costs for consumers and employers. In fact, a recent article in Health Affairs, The Increased Concentration Of Health Plan Markets Can Benefit Consumers Through Lower Hospital Prices, found that “more concentrated health plan markets can counteract the price-increasing effects of concentrated hospital markets, and that—contrary to conventional wisdom—increased health plan concentration benefits consumers through lower hospital prices as long as health plan markets remain competitive.” The article also states that “consumers would benefit from policies that maintained competition in hospital markets or that would restore competition to hospital markets that are uncompetitive.”
Additional research showing the impact of provider consolidation on rising medical costs:
- A recent issue brief from the Robert Wood Johnson Foundation found that “increases in hospital market concentration lead to increases in the price of hospital care,” and that “when hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent.”
- An analysis of provider consolidation by Cory Capps and David Dranove, Market Concentration of Hospitals, found that “in 2009, hospital ownership was ‘highly concentrated’ in over 80% of the 335” areas studied.
- James Robinson, a professor of health economics at UC Berkeley, recently released two new studies examining the impact that hospital market concentration has on medical prices.
- Mr. Robinson’s first study, Hospital Market Concentration, Pricing, and Profitability in Orthopedic Surgery and Interventional Cardiology, was published in the American Journal of Managed Care (2011) and looks at the direct link between hospital market concentration and pricing. It found that, “Hospitals have been merging with and acquiring nearby facilities, creating local and regional chains that potentially wield greater bargaining leverage than do stand-alone facilities.” Moreover, the articles stated that, “Hospitals in concentrated markets were able to charge higher prices to commercial insurers than otherwise-similar hospitals in competitive markets..”
- His second study, Hospitals Respond to Medicare Payment Shortfalls By Both Shifting Costs and Cutting Them, Based on Market Concentration, was published in the July 2011 edition of Health Affairs and examines how hospitals in concentrated markets and competitive markets respond to lower payment rates from Medicare. From the article abstract: “The study presents empirical evidence that, faced with shortfalls between Medicare payments and projected costs, hospitals in concentrated markets focus on raising prices to private insurers, while hospitals in competitive markets focus on cutting costs.”
- An issue brief from the National Institute for Health Care Management, Understanding U.S. Health Care Spending, found that, “Higher spending for hospital care and physician and clinical services accounted for half of the increase in total national health spending between 2005 and 2009 and more than 80 percent of the increase in private insurance premiums over the period.” Moreover, the brief states that “rising prices per unit of service have played a larger role than rising utilization rates as a determinant of recent expenditure growth” and that one of the factors contributing to these higher prices is “ongoing provider consolidation and enhanced negotiating strength vis-à-vis insurers, resulting in an ability to extract higher payment rates from insurers.”
- An issue brief from the Center for Studying Health System Change, Rising Hospital Employment of Physicians: Better Quality, Higher Costs? (August 2011), examined the trend of hospitals employing more physicians and concluded that: “While the potential of hospital-employed physicians to improve quality and efficiency has received attention, the potential for higher costs has received less attention. The existing fee-for-service payment system that encourages hospital strategies to use employed physicians to increase referrals and admissions, coupled with the market power of hospitals to gain higher payment rates, risks overshadowing potential quality gains.”
- Paul Ginsburg and Robert Berenson, in an article in the February 2010 edition of Health Affairs, stated that “providers’ growing market power to negotiate higher payment rates from private insurers is the ‘elephant in the room’ that is rarely mentioned.”
- In 2010, the Massachusetts Attorney General Martha Coakley released an updated report, Examination of Health Care Cost Trends and Cost Drivers, which found that “price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts.” Moreover, the report found that “price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.”
- A 2006 report from the Robert Wood Johnson Foundation, How Has Hospital Consolidation Affected the Price and Quality of Hospital Care?, stated that, “Research suggests that hospital consolidation in the 1990s raised inpatient prices by at least five percent and likely significantly more. Prices increase 40 percent or more when merging hospitals are closely located.” The report also found that higher hospital prices do not translate to higher quality of care, saying: “[A] narrow balance of the evidence and the evidence from the best studies indicates that hospital consolidation more likely decreases quality than increases it.”
- The Federal Trade Commission and the Department of Justice held extensive health care hearings in 2002 and 2003, and in their subsequent report noted the correlation between hospital concentration and high hospital prices: “Most studies of the relationship between competition and hospital prices have found that high hospital concentration is associated with increased prices, regardless of whether the hospitals are for-profit or nonprofit.”
For more information on the impact of provider consolidation on health care prices, visit AHIP’s Coverage Blog here: http://www.ahipcoverage.com/tag/provider-consolidation/.