Regulators review market consolidation

October 1, 2011
Jill Wechsler
Jill Wechsler

A wave of consolidation among providers is being blamed for driving up costs.

WASHINGTON-A wave of consolidation among providers is being blamed for driving up costs. As Congressional leaders and the White House struggle to identify some $1.5 trillion in deficit reduction opportunities over 10 years, they are anxious to promote provider competition as a way to curb claim costs for Medicare and Medicaid.

These concerns about healthcare market concentration were aired at a House Ways and Means Health Subcommittee hearing last month, held to examine the impact of hospital and provider mergers on private health insurance costs, Medicare spending and consumer outlays. Although provider consolidation could lead to greater efficiencies and improved outcomes, hospital mergers also lead to significantly higher prices for those with private health insurance.

Ranking Democrat Pete Stark of California warned that efforts to increase efficiency, improve quality and eliminate waste should not create "provider behemoths that can be virtual price setters." All sides agree that healthcare consolidation warrants further committee scrutiny.

A large portion of healthcare spending growth over the last 10 years is attributable to higher provider prices, according to Paul Ginsburg, president of the Center for Studying Health System Change (HSC). The managed care backlash of the mid-1990s, he noted at the hearing, put pressure on insurers to create broader provider networks that included "must-have" hospitals and physician groups. This reduced the ability of health plans to negotiate lower rates and raised insurance costs. Employers similarly opted to contain outlays through higher beneficiary cost sharing-instead of limiting provider choice.

Now hospitals in many areas have expanded their market clout through mergers and increased employment of physicians. Ginsburg cites HSC reports from 12 markets across the country that found higher provider payment rates to be a major factor driving up premiums.

A recent HSC study also found wide variation in private insurer payment rates to hospitals and physicians across and within local markets. American Hospital Assn. data indicate that the ratio of private payer rates to hospital costs increased from 116% in 2000 to 134% in 2009.

Ambulatory Surgery Center (ASC) operator Michael Guarino complained that hospitals are buying up ASCs around the country to eliminate low-cost competitors, a trend that will boost Medicare costs considerably if allowed to continue. Similarly, Dianne Kiehl, executive director of the Business Healthcare Group of Southeastern Wisconsin, described how "rampant provider consolidation" is driving up insurance rates and healthcare spending in her region.