Hospital M&A big driver in price variation

Two people shake hands over cash.

There is a strong correlation between high price variation and mergers and acquisitions of hospital operators and physician practices, two executives at America’s Health Insurance Plans assert.

The level of reimbursement for services performed in inpatient and outpatient settings is often enormous, according to a blog post by AHIP executives Aparna Higgins and German Veselovskiy, published by Health Affairs. For example, hospital outpatient departments receive twice as much for an echocardiogram than independent physician practices.

That in part has prompted many hospitals to acquire physician practices, with the number of “vertically consolidated” doctors almost doubling between 2007 and 2013.

As a result, there is enormous price variation, even for the most common services, such as office visits and x-rays. Prices ranged from 21 percent to 258 percent higher for seven common procedures when performed in a hospital outpatient setting, according to Higgins and Veselovskiy. A separate study published in Health Affairs last year concluded that prices for outpatient services in hospital settings have risen at a much higher rate than at ambulatory service centers.

But mergers among hospitals themselves can also be attributed for driving up prices. “While consolidated health systems may gain the ability to better coordinate care for the patients, they are certainly gaining greater market power,” the authors said. “This makes it difficult for insurers to bargain successfully with one of only a few health systems to achieve lower prices.”

The authors noted that costs could be better controlled if the Centers for Medicare & Medicaid Services and other payers followed the recommendations of the Medicare Payment Advisory Commission, or MedPAC, to equalize the payments between hospital outpatient and physician office settings of 66 different services.

CMS did take some action last year, cutting prices for outpatient services at hospitals slightly, while also providing physicians a minute pay bump for the same services.

- read the Health Affairs blog post