Provider clout a harbinger for challenges to health reform

Research over two decades of hospital mergers and acquisitions shows that consolidating hospital markets propels higher costs for private insurance payments. Medicare is the primary payment negotiator for the elderly and disabled, and is relatively unmoved by providers' dominance. On the other hand, private payers usually agree to much higher rates than Medicare. A study by the Center for Studying Health System Change in six California markets shows that as hospitals and health systems grow in market share, the costs for healthcare accelerate faster. 

Those results, the study says, foreshadow that problem across the country. In fact, on average, nationally, commercial insurers' hospital reimbursement rates are 30 percent higher, while physician reimbursement rates are 20 percent higher than Medicare rates.

The study analyzed several market trends, including evolutionary market changes, demand for broader provider networks, regulatory environment, 'must-have' hospitals, and joint hospital and physician-group negotiations. The overall conclusion was that a shift occurred in moving the upper hand from health insurance plans to healthcare providers, resulting in higher premiums.

"I am shocked there isn't an outcry over the fact that our costs are driven out of control," a health plan executive complains. "We would like to establish some sort of boundary, beyond which these guys can't go. We'd welcome some regulatory intervention to break up these monopolies, because they are just killing us."

But the study also found that provider market power is not just due to integration. A lone 'must-have' hospital can command escalating payment rates-much higher than Medicare's. These high prices are undercutting cost control measures.

Unless free market solutions can be found to curb providers' increasing market power, legislators may need to step in with solutions like price caps on negotiated private sector rates and adoption of all-payer rate setting.

To learn more:
- read the Health Affairs study