Provider costs, market power could lead to rate-setting

June 1, 2012

Medicare data could give payers information on rising provider costs.

Growing enthusiasm for establishing Accountable Care Organizations (ACOs) is focusing more attention on how much dominant providers can control insurance rates and reimbursement. At the same time, more physicians are selling their practices to hospitals that hope to lock up market share.

"Must-have" hospitals have gained the upper hand in negotiating higher payments, according to comments made by Center for Studying Health System Change (HSC) President Paul Ginsburg at a hearing before the Ways & Means committee in September 2011 and in several recent reports.

HSC also found that market control varies geographically and among providers. While dominant and specialty hospitals generally exercise considerable leverage in negotiating rates, community and safety-net hospitals often accept rates near Medicare and Medicaid payment levels.

Similarly, Ginsburg and colleagues lay out how rising prices paid to hospitals and other providers "play a significant role in rising premiums for privately insured people," in a May analysis for the National Institute for Health Care Reform. The report advises states to consider establishing rate-setting authorities to constrain hospital prices. Such programs now are only in effect in Maryland and West Virginia, and are difficult to establish politically and practically but could be an effective way to restrain healthcare outlays.

INCREASING COMPETITION

Instead of taking regulatory action to set hospital rates, payers also are looking to bolster competition through payment strategies that encourage quality care and efficiency. For example, plans might raise beneficiary cost-sharing for high-cost providers.

Another approach is to disclose provider rates, as done by Medicare in posting data on payments to hospitals for treating individual patients. Last month, the Centers for Medicare and Medicaid Services (CMS) presented cost-per-Medicare-beneficiary scores that revealed wide disparities in charges at some 1,800 hospitals across the country. Hospitals charge about $18,000 on average to treat a patient, including the month after discharge. The most expensive providers charge $30,000 or more, compared to $9,700 for the least costly.

Such cost measures will help CMS identify facilities that provide excess medical care. They also will be useful to Medicare in calculating value-based purchasing scores that help set inpatient prospective payments. Hospitals question whether the scores account for other factors that drive up costs, besides organizational inefficiencies and excessive care.

CMS also is testing various methods for linking provider reimbursement to quality standards and cost savings, and analysts already are comparing the cost data to hospital quality scores. These calculations will help payers identify more efficient providers, and how hospital size and structure relate to comparative costs and quality.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.