And you thought the debate about health care reform was over. In fact, it’s just begun.
Martha Coakley, Massachusetts Attorney General and erstwhile candidate for the U.S. Senate recently charged that some of that state’s largest hospitals and physician groups are large and powerful enough to raise their prices and the reimbursement rates paid by health insurance companies, causing premiums to rise faster than they would otherwise.
Market power is determined by how many people in a geographic area use a particular hospital. In other words, a hospital that serves 60 percent of the population in an area is able to charge higher prices to an insurance company than a hospital serving only 40 percent of the population.
At $2.5 trillion a year, health care costs in 2009 consumed almost 17.3 percent of the nation’s gross domestic product, according to recent projection by the Centers for Medicare and Medicaid Services. This is an increase of 5.7 percent over 2008. If the trend continues, the average premium of $14,000 for a family plan in Vermont will be more than $24,000 in nine years.
The new federal health reforms will do little or nothing to curb the market power of hospitals and physician groups.
The new federal health reforms will do little or nothing to curb the market power of hospitals and physician groups. Many health economists believe that the same kinds of strategies described in the Coakley report are pursued in every state.
In releasing the results of her investigation, Coakley said, “These rising costs are unsustainable. If we don’t do something about it, the only thing we’ll be able to afford is health care. No one will have money for food or housing.”
The investigation revealed:
Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and among providers offering similar levels of service.
One reason large hospitals and physicians groups “have a great deal of leverage in negotiations [is] because insurers must maintain stable, broad provider networks,” the report said. This is a structural defect, say critics of the current insurance scheme, that would not exist under a single-payer system.
- There is “a widespread practice of major insurers making supplemental payments [over and above payments for specific services] to providers…[and] certain providers – notably those with the strongest market leverage…receive substantial amounts of money through supplemental payments.
- Price increases by hospitals and physician groups, not increased use of their services by consumers, “caused most of the increases in health care costs during the past few years.”
- Ten hospitals charged insurance companies prices for the same services that were between 10 percent and 100 percent higher than the prices charged by 55 other hospitals in the state.
- Price variations are not correlated to quality of care, the sickness or complexity of the patients, the extent to which a large portion of the patients are covered by Medicare or Medicaid, or whether a provider is an academic teaching, community or research hospital.
- Some hospitals can negotiate higher rates because they are geographically isolated since insurers must include them in their networks in order to provide hospital services to their members in that geographic location. Because there is no alternative hospital, a geographically isolated hospital is not forced to compete for inclusion in an insurer’s network. It can therefore raise the prices it charges the insurance companies.
- Contracts where a hospital agrees not to charge an insurance company more than it charges that insurance company’s competitors “decrease competition among providers by reducing their incentive to offer lower prices to insurers…and may reduce insurers’ incentive to bargain with providers.”
- Finally, the report concludes, “[t]he commercial health care marketplace has been distorted by the contracting practices that reinforce and perpetuate disparities in pricing.
One reason large hospitals and physicians groups “have a great deal of leverage in negotiations [is] because insurers must maintain stable, broad provider networks,” the report said. This is a structural defect, say critics of the current insurance scheme, that would not exist under a single-payer system.
The report was released in late January after a 12-month investigation by Coakley’s office and was based on confidential information received from five health insurance companies representing more than 70 percent of the Bay State’s residents and 15 hospitals and physician groups.
The attorney general’s office agreed not to make public the names of the hospitals and physician groups involved in the investigation in exchange for hospitals and doctors groups releasing their normally confidential information on prices, costs and contract provisions.
The state clearly intends to follow through with the findings of the report and force changes that will elimination the price disparities. Two weeks after Coakley released her report, Gov. Patrick Duval submitted a bill to the legislature that give the state’s insurance commissioner power to review and reject rates charged by hospitals, physician groups, medical imaging cents, and insurers.
In fact, price increases by hospitals and other providers would be “presumptively disapproved as excessive” if they increased faster than the level of medical inflation. Last year, the premiums paid for their employees by small businesses increase 23 percent while medical inflation was about 8 percent.
In hearings on the issue held by Coakley’s office in mid-March, Thomas Glynn, the chief operation officer of Partners HealthCare, which owns Massachusetts General Hospital and Brigham and Woman’s Hospital, two the biggest most prestigious hospitals in the state, the company realizes it’s too costly and is working to become less expensive.
According to a report in the Boston Globe, Glynn said the prices charge by hospitals and doctors don’t have as big a role in driving health care costs as Coakley’s investigation suggested.
He said Partners is trimming expenses by better managing the care of very sick patients and by freezing salaries for some workers.
