‘Elephant in the Room’ Could Be Providers’ Market Power

In the evolving debate over health reform, Democrats increasingly have honed in on private insurers’ practices. Citing planned rate hikes by Anthem Blue Cross as one example, the Obama administration has argued that insurers need more regulation and competition in order to slow rising health spending.

But what if hospitals and physicians are driving most health costs — and current reform proposals would worsen the problem?

That’s the argument advanced by Robert Berenson, Paul Ginsburg and Nicole Kemper in a recent study from the Center for Studying Health System Change. The study was conducted with funding support from the California HealthCare Foundation, which is the publisher of California Healthline.

The researchers analyzed six major California markets and conducted interviews with representatives from hospitals, health plans and physician groups between October and December 2008 to determine regional variation in health care affordability, access and quality. According to their findings, hospital and physician networks formed or expanded in each community, partly driven by fallout from California’s history of managed care contracting.

These larger organizations wielded greater market power and were able to charge higher rates from private payers, in some cases 200% more than Medicare reimbursements.

The researchers wrote that “California’s experience is a cautionary tale for national health reform. It suggests that proposals to promote integrated care through models such as accountable care organizations (ACOs) could lead to higher rates for private payers.”

Provider associations have taken issue with the study. According to Melinda Hatton, the American Hospital Association’s general counsel, HSC’s findings are “far from convincing.” Hatton maintains that insurers’ own market power remains the primary driver of rising health care costs, and to back up her argument she cites an American Medical Association report finding that a handful of insurers dominate 309 out of 313 metropolitan areas across 43 states.

AMA also contends that insurers’ market dominance, rather than providers’ response, has produced higher premiums without increased consumer benefits. The association has called on Congress to stiffen federal antitrust laws for insurance companies — a measure the House of Representatives approved last month.

However, the HSC researchers conclude that more severe antitrust provisions will not address rising costs stemming from providers’ negotiating power and say that more “direct” regulatory approaches are needed, including all-payer rate setting and price caps.

The researchers also note that current reform proposals might not fully address the issue of market dominance, adding that measures touted to promote integration and reduce health care costs — such as ACOs — may actually strengthen providers’ bargaining position and limit the potential of these reforms to lower premiums through increased efficiency.

These issues have been often overlooked in the health reform debate, according to HSC’s Berenson. Instead, he warns that providers’ market power remains “the elephant in the room that no one wants to talk about.”

News From the Hill

  • On March 8, Rep. Anthony Weiner (D-N.Y.) said that House liberals want to tie a series of fixes to the Senate health reform bill (HR 3590) instead of putting the changes in a separate bill that would be passed via budget reconciliation, The Hill‘s “Blog Briefing Room” reports. Weiner said that many House Democrats are concerned that the Senate would renege on its promise to pass an additional bill that would enact changes favored by the House (O’Brien, “Blog Briefing Room,” The Hill, 3/8).
  • A Democratic aide said that a new provision in health reform legislation would require businesses to count part-time employees when determining penalties for failing to provide coverage, the AP/Chicago Tribune reports. The original Senate bill would have counted only full-time workers (Werner, AP/ Chicago Tribune, 3/8).
  • Top Obama administration officials at the beginning of March privately placed the odds of passing national health reform at 51%, Politico‘s “Live Pulse” reports. According to “Live Pulse,” the figure is higher than many experts have predicted (Frates, “Live Pulse,” Politico, 3/8).

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