Evidence Shows Provider Consolidation Leads to Higher Health Costs for Consumers and Employers

As health care costs continue to rise, there is a substantial body of evidence demonstrating that provider consolidation gives hospitals greater negotiating strength and limits competition, resulting in higher prices for services, higher costs for patients, and no improvement in the quality of care delivered. Academics, government agencies and others have demonstrated the impact of this trend on prices for services:

  • Paul Ginsburg and Robert Berenson, 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.”
  • An analysis of provider consolidation by Cory Capps and David Dranove found that “in 2009, hospital ownership was ‘highly concentrated’ in over 80% of the 335” areas studied.
  • The Robert Wood Johnson Foundation found that these kinds of “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.” Moreover, there is no evidence that higher costs associated with provider consolidation result in higher quality care for patients. In fact, this study shows that increased competition between hospitals resulted in higher quality care and greater access for consumers.
  • Data show that rising health care costs are driven by higher prices for medical services. A study by the Health Care Cost Institute found that “rising prices – not rising utilization – was the primary driver of spending growth.”
  • As James Robinson, a professor of health economics at UC Berkeley noted, “Prices should reflect the value of the hospital services offered, not the consolidation of the local hospital market.”
  • AHIP has filed an amicus brief in support of the Federal Trade Commission in a case challenging a recent hospital merger. The brief notes that “Anticompetitive hospital mergers ultimately lead to a loss of consumer choice and higher premiums and out of pocket costs for individuals, employers, government entities, and others—everyone who receives or offers health care through a health plan.”

News articles have highlighted the impact of provider consolidation on prices across the country.

  • WSJ article highlighted the impact on prices when hospitals purchase physician practices. The article stated that “hospital systems with strong market heft can often negotiate higher rates for physician services than independent doctors get. The differential varies widely, anywhere from 5% or less to between 30% and 40%.”
  • An article in the Orlando Sentinel examined the impact of consolidation in Florida, citing a study showing that “the cost for a basic doctor visit nearly doubled once a practice was purchased.” According to this study, “Last year, a 15-minute visit to a doctor in private practice cost $69, including the $14 patient co-pay, the report said. That same visit to a hospital-employed physician cost $124. The patient portion rose to $25.”
  • For patients in North Carolina, the mark-up on cancer treatments has proved “financially devastating.” An article from The Charlotte Observer/Raleigh News & Observer “found hospitals are routinely marking up prices on cancer drugs by two to 10 times over cost. Some markups are far higher. It’s happening as hospitals increasingly buy the practices of independent oncologists, then charge more – sometimes much more – for the same chemotherapy in the same office.”
  • According to an article in the Cleveland Plain Dealer, hospital systems in Northeast Ohio are “doing away with the age-old doctor’s office visit,” which they say is part of “a profound shift in the nation’s health care delivery system that has left some patients saying they’re unable to afford routine care.” The article found that these new types of doctors’ office visits hit patients with private coverage particularly hard because “there are usually two separate charges — one for the doctor often charged at a higher hospital rate and another for the space used to treat a patient, known as a ‘facility fee.’ This dual bill for a single treatment can result in charges that are two, three, or four times more costly for patients — all for basically the same care.”

Health plans are leading the way on payment and delivery system reform.

  • Experience in the marketplace demonstrates that consolidation among providers is not necessary to reform the payment and delivery system to better reward value, quality, and health outcomes.
  • Health plans are partnering with hospitals and doctors across the country to change payment models to reward quality and better health outcomes. An AHIP study in Health Affairs examining private-sector accountable-care arrangements found that health plans are providing the support providers need to make these initiatives a success.
  • Health plans have pioneered innovative programs and services to coordinate care for patients with multiple chronic conditions, help patients manage chronic disease, and promote prevention and wellness. These initiatives have demonstrated results in better health outcomes, improved patient safety, fewer preventable hospital readmissions and lower health care costs.
  • While hospitals have argued consolidation is a required step for accessing capital required to make IT and infrastructure improvements, the health plan experience with patient-centered medical homes (PCMHs) and accountable care organizations (ACOs) suggest that health plans offer providers technology and care coordination expertise to achieve improved care management and significant cost control.

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