Mergers Used by Hospitals to Increase HMO Reimbursements

In a front-page report, the Wall Street Journal today examines a "little-known power shift" since the late 1990s in which large hospital chains have "reshaped themselves into local oligopolists with the muscle to enforce much higher prices." In the past, health insurance companies forced hospitals to "forgo price increases and discharge patients more quickly" and could "threaten to steer ... members to a rival hospital down the street" when opposed. But the Journal reports that today, "more aggressive hospital operators are beating managed care companies at their own game." Hospital chains "have built local bulk" through mergers and acquisitions that have allowed them to demand increased reimbursement rates from health plans. Hospital officials maintain that they have "strong reasons" for higher rates from private companies. Since Congress reduced Medicare reimbursement rates in 1997, hospitals nationwide have lost about $76 billion in federal funds, according to the American Hospital Association. New and more expensive technology has raised their costs, and increased federal and state regulations have added "billions of dollars of new expenses," AHA officials said.

Although the Department of Justice and the Federal Trade Commission moved to "deter" local hospital consolidation in the 1990s, the Journal reports that a series of federal court decisions "gave a green light" to the practice. Hospitals say that the industry consolidation has "heightened efficiency, which will improve care and, eventually, lead to lower prices." However, the Journal reports that consolidation has helped to "pump up corporate health care costs at a rate four times as fast as that of overall inflation." The Journal adds that the rise in reimbursement rates for hospitals has contributed to increased health insurance premiums, prompting many employers to require employees to cover more health costs (Martinez, Wall Street Journal, 4/12).