Same Doctor Visit, Double the Cost

By Anna Wilde Mathews
The Wall Street Journal, August 26, 2012

… hospitals are increasingly acquiring private physician practices.

Hospitals say the acquisitions will make health care more efficient. But the phenomenon, in some cases, also is having another effect: higher prices.

As physicians are subsumed into hospital systems, they can get paid for services at the systems’ rates, which are typically more generous than what insurers pay independent doctors. What’s more, some services that physicians previously performed at independent facilities, such as imaging scans, may start to be billed as hospital outpatient procedures, sometimes more than doubling the cost.

The result is that the same service, even sometimes provided in the same location, can cost more once a practice signs on with a hospital.

With private insurers, hospital systems with strong market heft can often negotiate higher rates for physician services than independent doctors get. The differential varies widely, anywhere from 5% or less to between 30% and 40%, industry officials say.

When Hartford Hospital, in Connecticut, bought Constitution Eye Surgery Center from its physician owners last year, it told regulators the center’s operating profit was about $3.9 million in fiscal 2009, before the sale. According to James M. Blazar, a senior vice president of the Hartford HealthCaresystem, the operating income at the center is expected to grow to nearly $8 million in fiscal 2012, the first full year of hospital ownership, though surgery volumes are likely to be fairly flat. Higher reimbursement is justified because the system made significant upgrades, he said. “We have not done this for a financial reason, we’ve done this for a quality reason,” he said of the deal.

Much has been written about consolidation of health care providers and how that gives them leverage during contract negotiations with private insurers. This article provides further confirmation of that reality.

Medicare has been drawn into this in that they often pay more for services performed in a hospital facility, but we can be reassured that appropriate adjustments will be made once the full impact of this manipulation is defined. That cannot be said for private insurers that depend on market negotiations. Those with clout prevail.

This would be fixed by simply establishing our own public monopsony – a single payer national health program – which would ensure value for all of us in our health care purchasing.