By Robert A. Berenson, Paul B. Ginsburg, Jon B. Christianson and Tracy Yee
Health Affairs, May 2012
Abstract
In the constant attention paid to what drives health care costs, only recently has scrutiny been applied to the power that some health care providers, particularly dominant hospital systems, wield to negotiate higher payment rates from insurers. Interviews in twelve US communities indicated that so-called must-have hospital systems and large physician groups — providers that health plans must include in their networks so that they are attractive to employers and consumers — can exert considerable market power to obtain steep payment rates from insurers. Other factors, such as offering an important, unique service or access in a particular geographic area, can contribute to provider leverage as well. Even in markets with dominant health plans, insurers generally have not been aggressive in constraining rate increases, perhaps because the insurers can simply pass along the costs to employers and their workers. Although government intervention — through rate setting or antitrust enforcement — has its place, our findings suggest a range of market and regulatory approaches should be examined in any attempt to address the consequences of growing provider market clout.
From the Discussion
More concretely, increased recognition of the role of provider pricing in rising health spending could stimulate both market-oriented and regulatory responses. Market-oriented approaches are generally based on benefit designs that make consumers more aware of costs and give them direct incentives to select low-cost options. However, these approaches, such as tiered networks, have been discussed for many years and are proceeding slowly. Nevertheless, renewed employer willingness to support choice-limiting networks with few providers could help balance negotiating leverage between providers and health plans.
Alternatively, in the face of rising premiums, employers unwilling to adopt more restrictive benefit designs might support more direct regulation of provider rates, perhaps setting upper bounds on permissible rates negotiated between health plans and providers in relation to Medicare rates.
http://content.healthaffairs.org/content/31/5/973.abstract
And…
Further Acceleration in US Healthcare Costs in February 2012 According to the S&P Healthcare Economic Indices
S&P Indices
April 19, 2012
The S&P Healthcare Economic Composite Index indicates that the average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased by 5.75% over the 12-months ending February 2012.
Specific S&P Healthcare Economic Indices:
7.73% – S&P Healthcare Economic Commercial Index
6.78% – S&P Professional Services Commercial Index
8.41% – S&P Hospital Commercial Index
2.72% – S&P Healthcare Economic Medicare Index
3.55% – S&P Professional Services Medicare Index
1.94% – S&P Hospital Medicare Index
Comment:
By Don McCanne, MD
This Health Affairs article explains how health care providers – particularly dominant hospital systems – through consolidation and other market manipulations, have been able to position themselves as “must-have” hospital and physician group systems that health plans must include in their networks so that they are attractive to employers and consumers. This “must-have” status allows these providers to demand steep payment increases from the private insurers.
Note that this leverage is applied through private insurers. Government programs such as Medicare are not intimidated by the market clout of these provider systems. Medicare simply pays rates that are enough to keep the provider systems from dropping out of the government program.
How much difference is there between the administered rates of Medicare and the market negotiated rates of the private insurers? Look at the most recent S&P Healthcare Economic Indices.
The latest twelve month per capita increase in the S&P Hospital Medicare Index was 1.94%. For the same twelve months, the per capita increase in the S&P Hospital Commercial Index – the rate increase for private insurers – was an astonishing 8.41% – more than four times the increase in the Medicare Index!
The highly respected authors of the Health Affairs article state that “a range of market and regulatory approaches should be examined in any attempt to address the consequences of growing provider market clout.” Fine. The health policy literature is replete with data that will explain why Medicare is so much more effective than the private insurers in controlling health care costs. Have another look at the literature. Then let’s reject the private insurers and their market manipulations, and move forward with adopting an improved Medicare for all.