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AHIP: Hospital Consolidation is Driving Health Costs

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   February 09, 2010

When the Massachusetts Attorney General's Office released a recent report sharply critical of the state's healthcare costs, one of the office's most often used words was "driver"—referring to hidden forces steering potentially out of control expenses.

Reacting to the AG's decision, health insurers' major lobby in Washington blames hospital consolidation as an often ignored reason for the soaring price of healthcare.

"The data shows that [hospital consolidation] has increased healthcare costs—with a higher price for healthcare services," says Robert Zirkelbach, spokesman for the America's Health Insurance Plans. "It's something that hasn't been paid attention to. It's certainly something we're looking at."

Zirkelbach pointed to studies and reports:

  • Hospitalization markets have increased their concentration by 47% during a 13-year period from 1990 to 2003, according to the Robert Wood Johnson Foundation. In addition, the foundation reported 88% of U.S. metropolitan areas have highly concentrated hospital market areas.

  • Significant price increases for hospital services after mergers—including findings by the Federal Trade Commission and Department of Justice after extensive 2002 and 2003 hearings—and reports from the Institute for Health Care Management  and the Robert Wood Johnson Foundation.

These reports show higher prices for consumers and insurers that do not lead to better care, he says.

The report from the Robert Wood Johnson Foundation says "research suggests that hospital consolidation in the 1990s raised inpatient prices by at least 5% and likely significantly more. Prices increase 40% or more when merging hospitals are closely located."

Generally, when "hospitals merge, prices rise for consumers and quality declines," according to Zirkelbach.

The issue of hospital consolidation was raised the Massachusetts Attorney General's Office preliminary report that found Massachusetts insurance companies pay some hospitals and doctors twice as much as others for essentially the same patient care. The report suggested the state's best-paid providers were the main driver of the state's soaring healthcare costs.

Attorney General Martha Coakley says the findings "raise concerns that existing systemic disparities in reimbursement may, over time, create a provider marketplace dominated by very expensive "haves" as the lower and more moderately priced "have nots" are forced to close or consolidate with higher paid systems.

The attorney general's report notes that the Massachusetts Association of Health Plans concurs with the findings that "approximately 75% of total healthcare costs" are attributed to price—not utilization.

"Although our investigation continues, it is clear that prices paid for healthcare services reflect market leverage," according to the report. "As a greater portion of the commercial healthcare dollar shifts, for reasons other than quality or complexity to those systems with higher payment rates and leverage, costs of the overall system will increase and hospitals with lower payment rates and leverage will continue to be disadvantaged."

Zirkelbach indicated that Massachusetts Attorney General's findings appear to be credible. In a statement, the Massachusetts Association of Health Plans noted, "The AG's interim report on provider payments is an important first step, but there are other aspects of healthcare costs that also need to be examined in order for there to be a more complete and balanced understanding of healthcare cost drivers and how to address concerns over rising costs. Increasing transparency and accountability among all healthcare stakeholders can only help this effort."

The American Hospital Association declined to comment on the Massachusetts report or the America's Insurance Plans assertion.

Spokesman Matt Fenwick referred to an AHA finding that it approves hospital pricing transparency, noting "people deserve meaningful information about the price of their hospital care. Hospitals are committed to sharing information that will help people make important decisions about their healthcare."

Joe Cantlupe is a senior editor with HealthLeaders Media Online.

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