|California Hospital-Physician Deals Undermining Cost Savings
While the high cost of private health insurance has
drawn plenty of attention in the health reform debate, another driver
of higher premiums has gone largely unexamined – the growing
market power of hospitals and physicians to negotiate higher payment
rates, according to a Center for Studying Health System Change (HSC)
study published by Health Affairs.
The study examined the growing market power of many
California hospitals and physicians, finding that providers are using
various strategies, such as tighter alignment of hospitals and
physician groups, to negotiate significantly higher payment rates from
private insurers. The study was funded by the California HealthCare
"Provider market power is the elephant in the room that
no one wants to talk about in the nationalhealthcare reform debate,"
said HSC senior consulting researcher Dr. Robert A. Berenson of the
Urban Institute. He co-authored the study with HSC President Paul B.
Ginsburg and Nicole Kemper, a former HSC research analyst.
"Reform proposals that encourage hospitals and
physicians to integrate have the potential to improve quality and
increase efficiency, but the savings may not be passed on to private
payers if provider market power to command higher prices goes
unchecked," Ginsburg added.
The authors conclude that "unless market mechanisms can
be found to discipline providers’ use of their growing market
power, it seems inevitable that policy makers will need to turn to
regulatory approaches, such as putting price caps on negotiated
private-sector rates and adopting all-payer rate setting.
The article, "Unchecked Provider Clout in California
Foreshadows Challenges to Health Reform," draws on HSC site visits to
six diverse California markets – Fresno, Los Angeles, Oakland/San
Francisco, Riverside/San Bernardino, Sacramento and San Diego –
between October and December 2008 to study regional differences in
health care affordability, access and quality.
The study identified three key factors in California
that are driving the shift of negotiating power from private insurers
to hospitals and physicians:
- Consumer demand for broader provider networks following the managed care backlash;
- Consolidation of hospitals into larger, powerful systems and tighter alignment with physicians; and
- Growing hospital and physician capacity constraints.
The authors note that "negotiating as a system across a
broad geographic area avoids antitrust scrutiny, which focuses on local
market concentration. At the same time, this strategy permits hospital
systems with leverage in some markets to negotiate high rates elsewhere
Address: Center for Studying Health System Change, 600 Maryland Ave. SW, #550, Washington DC 20024; (202) 484-5261, www.hschange.com.