Physician Group, Hopsital Consolidations Shift Power to Providers, Weber Says
The increasing consolidation of physicians groups and hospitals has helped to shift the balance of power from health plans to providers -- a transformation that is leading to higher health care costs for consumers, BusinessWeek columnist Joseph Weber writes. The "pricing power" of providers declined in the 1990s as the consolidation of managed care plans gave insurers more clout to dictate prices, and doctors and hospitals had little choice but to accept these terms. But the public backlash against managed care, combined with the "waves of mergers" among providers, has increased doctors and hospitals' leverage in contract negotiations with health plans, resulting in a return to the "feverish medical inflation" that managed care helped to control for almost a decade.
Weber offers as an example of the shift in power a recent struggle between Northern California's Sutter Health, a "mammoth ... provider with 26 hospitals and 5,000 doctors" and the insurer Health Net. When Health Net last fall refused to accept a 25% increase in reimbursements "demanded" by Sutter Health for 2002, Sutter "yanked its own 30,000 employees out of Health Net and pounded the insurer in newspaper ads, suggesting that perhaps patients should switch health plans." After the two sides finally came to terms, Health Net increased its premiums by 15%. This incident, Weber writes, illustrates how providers' growing market share is contributing to the rise in health costs. He notes that the number of U.S. hospitals has decreased by about 9% since 1990 to 4,915, while the nation's population has risen 13%. An increasing number of doctors are also "pool[ing] their negotiating power," thereby resulting in higher payments from insurers and subsequent higher premiums for businesses and individuals. According to Weber, while providers explain their demands for greater reimbursements as "an effort to restore the quality of care," the "exceptional power they have garnered seems all too easy to abuse." He offers three recommendations for "keeping provider costs in line":
- Federal and state antitrust investigators should examine markets where "providers wield disproportionate influence." Weber states that according to the Center for Studying Health System Change, four companies control "most patient admissions" in 10 of 12 representative U.S. markets. The Justice Department defines this level as "concentrated" for the purposes of antitrust legislation.
- Providers, along with insurers, should make their prices open to the public, something they "generally refuse to do." Such disclosure would allow consumers "to make choices about health care purchases just as they do for any other service."
- In turn, consumers must become more cognizant of how much their health care costs, "paying as much mind to doctors bills as [they] do to, say, car prices."
Weber concludes: "Such efforts may prove to be only Band-Aids. ... But as things now stand, [Americans] tolerate a system in which everyone pays exorbitantly and there are few checks on prices. Unless the private sector can come up with workable solutions, the clamor for a heavier government hand is sure to rise anew" (Weber, BusinessWeek, 1/28).
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