A new report from the Catalyst for Payment Reform suggests hospital consolidation has and will continue to increase prices — and traditional regulatory oversight from the Federal Trade Commission is not the answer to this problem.
Problematic prices
By 2006, more than 75 percent of metropolitan service areas in the United States had already experienced enough provider consolidation to be considered "highly consolidated," according to the report. Various formulas estimating the impact of consolidation on hospital prices have found price increases from 10 percent to 50 percent, under simulated scenarios.
Nationwide, payments to hospitals on behalf of privately insured are about 3 percent higher than they would be if it weren't for consolidation, according to the report. Since payments to hospitals by private payors account for roughly 13 to 15 percent of total healthcare expenditures, the report suggests total national healthcare spending is roughly 0.4 to 0.5 percent higher than it would be absent hospital consolidation. In 2006, that was the equivalent of $10 billion to $12 billion.
The report also differentiates prices for specific procedures in competitive markets compared with concentrated markets, finding quite a significant difference. For example, a pacemaker insertion in a competitive market for commercially insured patients was $30,399. In a concentrated market, that price grew to $47,477.
"Consolidated hospitals and integrated hospital/physician systems that are able to charge higher prices due to enhanced market power appear able to do so in the absence of some countervailing force (i.e., exclusion from the provider network of one or more payors, successful antitrust action or some other intervention)," according to the report.
Recommendations
The group has three recommendations to improve provider competition and pricing. First, it says antitrust litigation is important but "not enough on its own to slow significantly provider consolidation." Instead, the group suggests alternative approaches to counter the negative effects of consolidation, such as market-based approaches, coordinated public-private activities and regulatory interventions.
Market-based approaches. The CPR recommends consumer engagement strategies, such as consumer-directed health plans, reference pricing for services and price transparency, as well as network strategies. The latter includes selective contracting from payors and the development of centers of excellence, where patients can receive care from facilities with better outcomes and fewer readmissions.
Coordinated public-private activities. This includes episode-based and bundled payments from Medicare, accountable care organizations and global or population-based payment models between private payors and states, such as Maryland and Vermont.
Regulatory interventions. Finally, the CPR recommends interventions such as improved accuracy for Medicare's physician fee schedule, expanded oversight from states' departments of insurance and limits on emergency care costs to avoid monopolistic pricing.
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Problematic prices
By 2006, more than 75 percent of metropolitan service areas in the United States had already experienced enough provider consolidation to be considered "highly consolidated," according to the report. Various formulas estimating the impact of consolidation on hospital prices have found price increases from 10 percent to 50 percent, under simulated scenarios.
Nationwide, payments to hospitals on behalf of privately insured are about 3 percent higher than they would be if it weren't for consolidation, according to the report. Since payments to hospitals by private payors account for roughly 13 to 15 percent of total healthcare expenditures, the report suggests total national healthcare spending is roughly 0.4 to 0.5 percent higher than it would be absent hospital consolidation. In 2006, that was the equivalent of $10 billion to $12 billion.
The report also differentiates prices for specific procedures in competitive markets compared with concentrated markets, finding quite a significant difference. For example, a pacemaker insertion in a competitive market for commercially insured patients was $30,399. In a concentrated market, that price grew to $47,477.
"Consolidated hospitals and integrated hospital/physician systems that are able to charge higher prices due to enhanced market power appear able to do so in the absence of some countervailing force (i.e., exclusion from the provider network of one or more payors, successful antitrust action or some other intervention)," according to the report.
Recommendations
The group has three recommendations to improve provider competition and pricing. First, it says antitrust litigation is important but "not enough on its own to slow significantly provider consolidation." Instead, the group suggests alternative approaches to counter the negative effects of consolidation, such as market-based approaches, coordinated public-private activities and regulatory interventions.
Market-based approaches. The CPR recommends consumer engagement strategies, such as consumer-directed health plans, reference pricing for services and price transparency, as well as network strategies. The latter includes selective contracting from payors and the development of centers of excellence, where patients can receive care from facilities with better outcomes and fewer readmissions.
Coordinated public-private activities. This includes episode-based and bundled payments from Medicare, accountable care organizations and global or population-based payment models between private payors and states, such as Maryland and Vermont.
Regulatory interventions. Finally, the CPR recommends interventions such as improved accuracy for Medicare's physician fee schedule, expanded oversight from states' departments of insurance and limits on emergency care costs to avoid monopolistic pricing.
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