FI­NANCE:

Hos­pi­tals dis­pute study that seems to show their mar­ket clout

Modern Healthcare - - Front Page - Melanie Evans

In­sur­ers paid sig­nif­i­cantly more to some hos­pi­tals and less to oth­ers in eight U.S. mar­kets, re­search re­leased last week found. Econ­o­mists point to the re­sults as a pos­si­ble sign that hos­pi­tals wield mar­ket clout to raise prices at a time when the sec­tor is lob­by­ing for more lee­way un­der an­titrust laws.

The study, by the non­par­ti­san pol­icy re­search or­ga­ni­za­tion the Cen­ter for Study­ing Health Sys­tem Change and fi­nanced by an em­ployer group, found in­sur­ers paid widely dif­fer­ent prices to hos­pi­tals within each mar­ket and from one mar­ket to an­other, even af­ter ef­forts to ad­just the data for dif­fer­ences in cost.

The re­sults, wrote econ­o­mist Paul Gins­burg, who con­ducted the study and is pres­i­dent of the cen­ter, sug­gest some hos­pi­tals have the mar­ket power to name higher prices. “Few would char­ac­ter­ize the vari­a­tion in hos­pi­tal and physi­cian pay­ment rates found in this study to be con­sis­tent with a highly com­pet­i­tive mar­ket,” the study said.

Hos­pi­tals sharply de­nounced the study. The Amer­i­can Hos­pi­tal As­so­ci­a­tion CEO Richard Umb­den­stock, in a writ­ten state­ment, dis­missed the study as deeply flawed and said it had “no re­li­able ev­i­dence for these ex­ag­ger­ated claims,” re­fer­ring to the study’s sug­ges­tion that price vari­a­tion sig­nals mar­ket clout.

Health­care econ­o­mists called the wide-rang­ing prices strik­ing and said re­sults sug­gest hos­pi­tal lever­age may be a fac­tor. “It’s sug­ges­tive that there is mar­ket power go­ing on,” said Wil­liam Vogt, an as­so­ci­ate pro­fes­sor of eco­nom­ics at the Uni­ver­sity of Ge­or­gia, who stud­ies hos­pi­tal con­sol­i­da­tion and prices. He added that it can­not ex­clude the pos­si­bil­ity that prices re­flect sig­nif­i­cant dif­fer­ences in hos­pi­tal qual­ity or costs. “I’d say the ev­i­dence is sug­ges­tive, but not de­fin­i­tive,” he said.

Martin Gaynor, a pro­fes­sor of eco­nom­ics and health pol­icy at Carnegie Mel­lon Uni­ver­sity, agreed that the re­sults sug­gest hos­pi­tal clout “seems like a lead­ing sus­pect” be­hind the vari­a­tion and said re­search on pri­vate in­surance rates was limited but needed.

Four in­sur­ers con­trib­uted data for the mar­kets: Aetna, An­them Blue Cross and Blue Shield, Cigna Corp. and Unit­edHealth Group. In­sur­ers sub­mit­ted rate data in 2009 and were asked to sup­ply the most-cur­rent rates.

By cal­cu­lat­ing the pri­vate in­surance pay­ment as a per­cent­age of Medi­care, the study sought to ad­just for costs that may vary from one hos­pi­tal or mar­ket to the next, Gins­burg said. Medi­care ad­justs its rates based on geo­graphic dif­fer­ences in la­bor costs or for teach­ing or other ad­di­tional ex­penses, he said.

Gins­burg sits on an ad­vi­sory com­mit­tee to the Cat­a­lyst for Pay­ment Re­form, the em­ploy­ers’ group that funded the study.

High rates of con­sol­i­da­tion and strong brand rep­u­ta­tion are fac­tors that lend hos­pi­tals clout in price ne­go­ti­a­tions, econ­o­mists say. The same is true for geo­graphic iso­la­tion. Peter Ham­mer, a pro­fes­sor of health law at Wayne State Uni­ver­sity Law School, said he found the price dif­fer­ences for hos­pi­tals in the same mar­ket most strik­ing and un­likely to be caused by huge dif­fer­ences in qual­ity. “It’s the ab­sence of ef­fec­tive com­pe­ti­tion,” Ham­mer said.

The high­est-paid hos­pi­tals in each mar­ket saw in­pa­tient rates dou­ble to quadru­ple what Medi­care paid. One San Fran­cisco hos­pi­tal re­ceived 484% of Medi­care rates, and in Los An­ge­les in­sur­ers paid a hos­pi­tal 418% of Medi­care’s pay­ment. Hos­pi­tals with the low­est rates in both Cal­i­for­nia mar­kets—hos­pi­tal prices that ranked in the bot­tom quar­ter— were paid 136% of Medi­care in San Fran­cisco and less than Medi­care, 84%, in Los An­ge­les.

The study comes as the health re­form law has prompted au­thor­i­ties to con­sider new ex­cep­tions to an­titrust laws for hos­pi­tals and physi­cians. In­sur­ers have urged reg­u­la­tors to con­sider the po­ten­tial mar­ket power that net­works may gain.

In a Septem­ber let­ter to the CMS, in­surer trade group Amer­ica’s Health In­surance Plans said net­works that im­prove pa­tient care and re­im­burse­ment have “tremen­dous prom­ise,” but con­tin­ued: “Those that face back­ward, how­ever, rep­re­sent­ing sim­ply the de­sire to en­gage in joint ne­go­ti­a­tion or ag­gre­gate mar­ket power, will leave con­sumers with de­creased ac­cess, lower qual­ity and higher prices.”

Hos­pi­tal trade groups re­jected the re­sults as use­less. “Each in­surer used its own meth­ods to gen­er­ate price com­par­isons, and no ef­fort was made to ver­ify, val­i­date or cor­re­late the in­for­ma­tion pro­vided,” Umb­den­stock said.

Chip Kahn, pres­i­dent and CEO of the Fed­er­a­tion of Amer­i­can Hos­pi­tals, a trade group of in­vestor-owned hos­pi­tals and health sys­tems, said the study does not re­veal whether in­sur­ers added sup­ple­men­tal pay­ments, for train­ing doc­tors or high num­bers of unin­sured, to Medi­care rates in the study’s cal­cu­la­tion. With­out the in­for­ma­tion “I find it hard to come to a de­fin­i­tive con­clu­sion,” he said.

But Robert Zirkel­bach, an AHIP spokesman, said the find­ings were more ev­i­dence of hos­pi­tal con­sol­i­da­tion and grow­ing provider clout to raise prices.

The per­cent­age of U.S. com­mu­nity hos­pi­tals that op­er­ate within a health sys­tem has grown in re­cent years to 57.2% in 2008, the most re­cent fig­ures avail­able from the AHA, from roughly half (50.9%) in 1999.

Gins­burg de­fended the study method­ol­ogy and said he did not be­lieve the vari­a­tion cap­tured by the study was com­pro­mised by any po­ten­tial dif­fer­ence in in­sur­ers’ for­mula for cal­cu­lat­ing rates as a per­cent­age of Medi­care. Gins­burg said the for­mula may vary from one in­surer to the next, but each in­surer con­sis­tently ap­plied its own for­mula across each mar­ket.

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