Hospital consolidation not to blame for price increases

Impeachment and the 2020 presidential election may be the most prevalent political topics across the nation but there are more important skirmishes in the background. One of the bigger battles is the one currently raging between rural hospitals and government over consolidation and negotiated price disclosures.

Both are complicated situations where government and their regulators appear to be playing both sides of the field: backing coerced negotiated price disclosures under the guise it will help patients while fighting consolidation even though there’s evidence it could save patients money. It’s a multi-faceted argument which may not end up helping anyone in the long run.

The hospital system consolidation conflict mainly involves hospitals facing off against state governments with federal agencies occasionally chipping in support. California Attorney General Xavier Bacerra sued Sutter Health last year claiming it’s practicing anti-competitive activities and artificially keeping prices up. “Big business should not be able to throttle competition at the expense of patients. The California Department of Justice is dedicated to ensuring that all families in our state can access quality, affordable healthcare no matter where they live.”

His comments are based on a 2018 UC-Berkeley study which looked at hospital concentration following the implementation of Obamacare. The study claimed prices went up as systems merged and doctors let their practices be bought by hospitals.

“In 2010, the average county had 21% of its specialist physicians working for a foundation owned by a hospital or health system,” researchers wrote while noting premiums for an unsubsidized 40-year-old were 35% higher in Northern California by almost $100 compared to Southern California in 2016. “By 2016, the average county had 50% of its specialist physicians working for a foundation owned by a hospital or health system.”

Their conclusion? Prices were up due to consolidation. “It is clear that the market for health care and health insurance is now highly concentrated in California. The vast majority of counties in California warrant concern and scrutiny according to the DOJ/FTC Guidelines…The significant variation in prices and ACA premiums across the state suggests regulatory and legislative solutions need to be implemented. Consumers are paying prices for health care that are considerably above what a more competitive market would produce.”

Becerra and UC-Berkeley’s concerns about consolidation are also shared by Centers for Medicare and Medicaid Services Administrator Seema Verna.

“Faced with the growing complexity of government regulations, independent physicians are increasingly selling their practices to hospital systems, and new physicians are more often beginning their careers as employees of larger health systems,” she told the American Medical Association Annual Meeting of the House of Delegates in June. “This consolidation has unfortunate implications for American health care. We have seen many examples of anti-competitive behavior by large systems, including efforts to thwart price transparency and use monopoly status to drive up prices. This is why CMS has been working toward site neutral payments and other policies, like 340b to level the playing field for independent practices.”

It is rather interesting the prices went up after the so-called Affordable Care Act was passed in DC, along with other government-involved health care initiatives, but we’ll deal with that at a later time.

The big question is this: are the concerns by Verna, Becerra, and UC-Berkeley correct and consolidations are causing patients to pay more? The answer appears to be no but it depends on the source.

It is true Kaiser Health News reported in 2010 that Sutter Health had higher prices than the rest of Northern California hospitals.

An average day’s worth of care cost 37 percent more than the state average, even more than the University of California hospitals, which see more of the sickest patients. Catholic Healthcare West, another nonprofit chain that is one of Sutter’s main competitors in many Northern California markets, was paid 4 percent below the state average.

The facts appear to have changed from 2010 to 2019. Sutter said earlier this month their commercial price increases had dropped from 6.2% in 2010 to 2.9% in 2019. Some of it appears to be from realignment of certain services to cut costs. The other part could be accepting more Medi-Cal patients and hoping the money will eventually come in because the current system is not sustainable.

There are also other factors to hospital mergers nationwide and how mergers appear to save money.

“[L]arger hospitals are absorbing smaller hospitals and local physician practices in an attempt to gain market share and control costs,” North Carolina Rural Health Research Program reported in August 2018 while noting mergers dropped in 2016. “Hospitals have high fixed costs, and mergers may allow consolidation of services and reduction of duplicative fixed costs. For example, regional consolidation of orthopedic surgery in one large facility may be more cost-effective for a network than having multiple, small-volume orthopedic surgery programs.”

So, why is the narrative hospital prices are on the rise? Some of it has to do with the ongoing battle between hospitals and insurance providers on cost coverage. Insurance premiums are definitely on the rise and it’s much easier for them to blame hospitals for the increase instead of the government. Cato Institute noted in 1994 the price hike was due to government and insurance involvement.

“Analysis indicates that our high medical costs are the result of various government policies that have removed patients as purchasers in the medical marketplace,” Stan Liebowitz wrote back then with a note patients only paid $0.23 of every dollar for medical procedures with insurance covering the rest. “While that state of affairs may be no more than the unlucky result of misguided policies, it is detrimental to the health of medical markets and, if improperly diagnosed, may eventually prove deadly to the literal health of many Americans.”

He also suggested prices went up because of how often people decided to go to the doctor instead of dealing with illness on a case by case basis. It certainly is easier to go to a doctor if insurance is paying more for it than patients. Other factors include the notion insurance benefits have to be part of collective bargaining between businesses and unions due to 1948 and 1949 decisions by the National Labor Relations Board.

The solutions are not ones which are easily attainable and would take yards to unwind. There is no simple fix. However, it would be unwise to blame hospital consolidations for why prices go up. The truth is much, much more complicated.

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Jazz Shaw 8:31 AM on March 18, 2023