One of the most significant trends impacting the cost of healthcare is continued hospital consolidations and acquisitions, says AHIP director.
The staffing crisis in healthcare, along with the rising costs to provide quality care, will dominate the top issues facing healthcare CFOs in 2022. But equally important are the reduced or insufficient reimbursements that many hospitals and healthcare systems are receiving from payers.
Quite simply, as much as the healthcare sector is going through upheaval, so is the healthcare insurance sector, which accounts for the lion's share of revenues that hospitals depend on. Unfortunately, reimbursement rates from payers are not keeping up with inflation.
With increasing labor, supply, and pharmaceutical expenses, hospitals will be looking for increased rates from payer partners and will continue to focus on improving operational efficiencies to counteract those growing expenses, according to Charlton Park, CFO and chief analytics officer at the University of Utah Health.
HealthLeaders spoke with David Allen, director of communications and public affairs for AHIP, about the top payer trends that will directly impact the healthcare sector and consumers.
The impact of hospital consolidations and physician practice acquisitions
One of the most significant trends impacting the cost of healthcare is continued hospital consolidations and acquisitions, especially in crowded markets, Allen says.
"Every day, Americans bear the brunt of hospital consolidation. Hospitals in highly concentrated markets can charge higher prices for medical services and have greater leverage to negotiate higher prices from health insurance providers, leading to ever-increasing healthcare costs for individuals and families," Allen says. "Additionally, hospitals continue to buy up and take over control of doctors' practices, either by buying up their practices or hiring them directly. And hospitals are bringing prices along for the ride."
To reinforce this last point, Allen says that by the end of 2020, nearly half of American doctors were employed by hospitals or health systems—49.3%, according to an analysis from the Physicians Advocacy Institute.
"That's not surprising, given that 18,600 doctors left independent practice and became employees of hospitals in 2019 and 2020," Allen says. Meanwhile, the institute's data reveals that hospitals acquired 3,200 physician practices during that two-year period, for an 8% increase in hospital-owned practices.
"Evidence shows that this type of consolidation—when more and more of a region's doctors work for the same hospital or health system—leads to higher healthcare prices for Americans," Allen says. "When hospitals gain more market power by snapping up doctor practices, they can control referrals and demand higher prices, which in turn makes premiums and costs for everyone even higher."
The high cost of prescription drugs
Drug prices are out of control, putting life-saving medications out of reach for too many American families, Allen confirms.
Indeed, while inflation will have severe impacts in many areas of healthcare, that is especially true with the price of drugs.
"Drug inflation has been the most severe," says Denise Chamberlain, executive vice president and CFO at Edward-Elmhurst Health, a $1.7 billion health system in the suburbs of Chicago. "According to a Kaufman Hall report, the average drug cost per patient in September 2021 was up 40.4% compared to September 2020."
The greatest problem here is that drug prices are set by brand-name drug manufacturers based on what they think the market will pay, Allen explains.
"Generics and biosimilars provide much-needed competition to drive those drug prices down. But the uptake of biosimilars has been limited because previously, none have been approved by the Food and Drug Administration as interchangeable," Allen explains.
Biologics and biosimilars are important medical advancements that are being used to manage many chronic conditions, as well as to prevent, treat, and even cure diseases, Allen says. They represent the future of prescription drugs.
"But an innovative new drug doesn't do any good if no one can afford it," Allen stresses.
Addressing social determinants of health and health equity
To achieve health equity such that every person has a fair opportunity to live a healthy life, we must address root socioeconomic and sociopolitical causes of poor health and health disparities, Allen says.
"The cost of inaction on social barriers to healthcare has glaringly emerged during the COVID-19 pandemic, exposing the stark inequities that exist in America and demonstrating the crucial link between socioeconomic barriers and health outcomes," Allen says.
The good news is that many health insurance providers recognize the importance of meeting the basic needs of their members and have utilized policy levers to mitigate the socioeconomic barriers that they face.
"Health insurance providers respond to socioeconomic barriers in a variety of ways, ranging from offering services that are covered under the insurance plan to designing and implementing new innovative programs—often in partnership with community-based organizations," Allen explains.
"Many health insurance providers also invest in grant funding, reserve funds, or savings in community infrastructure and community-based resources to improve the socioeconomic living conditions of the communities they serve. So, the focus is not just on reducing disparities for their members, but also on advancing health equity across the community by increasing opportunities to live healthy lives," Allen says.
Increasing competition can lead to lower premiums
Perhaps the best financial news for many hospitals and healthcare systems is that the average consumer has a growing number of options when it comes to healthcare insurance providers. This has the potential of reducing the cost of such insurance for an individual.
"Every American deserves affordable, comprehensive coverage—regardless of their income, health status, or preexisting conditions," Allen says. "The individual market provides affordable, high-quality healthcare for hardworking Americans who buy coverage on their own. Through the Affordable Care Act [ACA] health insurance exchanges, health insurance providers compete to provide Americans with coverage that protects their health and financial security."
Competition among health plans is on the rise, Allen says, which could translate to reduced cost or increased coverage for an individual subscriber.
"The ACA's Exchanges allow Americans to compare plans and choose the benefits that best meet their needs. On the Federal Exchange through healthcare.gov, the average consumer has between 6–7 issuer options, up from 4–5 in 2021," Allen notes.
Competition lowers premium costs for consumers. Research shows that counties with one additional health insurance provider in 2019 experienced a 2.5% reduction in the benchmark premiums compared to 2018. Average benchmark plan premiums in healthcare.gov states decreased 3% from 2021 to 2022, after a 3% decrease from 2020 to 2021.
Finally, at the state level, Allen says AHIP continues to focus on affordability through a competitive market.
"That includes pushing back against drug manufacturers seeking to pass legislation that allows their drug prices to remain obscured to the consumer, and providers who want to limit the use of medical management tools to promote safety and the most effective treatments," Allen says.
“Every day, Americans bear the brunt of hospital consolidation. Hospitals in highly concentrated markets can charge higher prices for medical services and have greater leverage to negotiate higher prices from health insurance providers, leading to ever-increasing healthcare costs for individuals and families.”
David Allen, director of communications and public affairs, America's Health Insurance Plans
David Weldon is a contributing writer for HealthLeaders.