Large doctor practices, many owned by hospitals, exceed federal guidelines for market concentration in more than a fifth of the areas studied by Health Affairs.

This article first appeared September 08, 2017 on Kaiser Health News.

By Jenny Gold

MOUNTAIN VIEW, Calif. — When Dr. Sarah Azad followed her mother into the field of obstetrics eight years ago, she thought she’d be in private practice for the rest of her career. At the time, independent practices abounded in Silicon Valley.

“From the time we were young, my mom’s patients loved her. She was a part of their lives. That’s just always how I’ve seen medical care,” she said.

But over the past decade, she’s watched as doctor after doctor sold their practice and went to work for one of the large hospital systems in town. Today, Azad runs one of the last remaining independent OB-GYN practices in Mountain View.

The number of physician practices employed by hospitals increased by 86 percent from 2012 to 2015, according to a study conducted by Avalere Health for the Physicians Advocacy Institute, a health policy-focused nonprofit.

Perhaps nowhere has the trend been more pronounced than in Northern California.

As large hospital systems like Sutter Health, Stanford Medicine and UCSF Medical Center gobble up doctor practices, they gain market muscle that pushes costs upward. It’s a key reason why Northern California is now the most expensive place in the country to have a baby.

A study published this week in Health Affairs found that large doctor practices, many owned by hospitals, exceed federal guidelines for market concentration in more than a fifth of the areas studied. But the mergers are typically far too small for federal antitrust authorities to notice.

“When you have less competition, prices go up,” said Martin Gaynor, a health care economist at Carnegie Mellon University. “If you’re an insurance company and you don’t reach an agreement with Sutter, then you have a hard time offering an attractive insurance product because it’s so big and pervasive. So you don’t have the same negotiating power, and Sutter can extract higher prices.”

In the San Francisco Bay Area, the reimbursement rate for a vaginal delivery is two to four times higher for physicians who work for large hospital systems than for those who are independent, according to a Kaiser Health News analysis. The news organization examined claims data provided by Amino, a health cost transparency company, plus results from medical cost calculators available from certain employers to help workers comparison shop.

The extra money for physician services goes to the hospital system, and doctors, now on salary, might take home no more than before. Although switching from independent practice spares OB-GYNs the considerable hassles of negotiating with insurers and running an office, doctors say the lion’s share of the benefit goes to hospital systems — not to physicians or patients.

In Northern California, Sutter, Stanford and UCSF all mentioned quality as a reason why their physician prices are higher, and it might seem intuitive that integrating care among disparate physicians leads to better care.

“Sutter Health-affiliated doctor groups consistently rank among California’s highest performers,” Dr. Jeffrey Burnich, senior vice president at Sutter Health Medical and Market Networks, wrote in an email. In the long run, “by improving care quality and efficiency, we reduce costs.”

But in general, research suggests bigger is not necessarily better.

Fewer patients of small physician-owned practices, for example, are admitted to the hospital for preventable conditions than those of large hospital-owned practices, according to a 2014 study published in Health Affairs. A report from the National Academy of Social Insurance showed that the integrated delivery networks of large hospital systems have raised physician costs without evidence of higher quality. And a recent paper, also published in Health Affairs, found that high-price physician practices, which cost at least 36 percent above average, had no better quality than low-cost practices.

“All of the evidence that we see shows that the quality in these larger systems is the same or worse,” said Kristof Stremikis, associate director for policy at the Pacific Business Group on Health, which represents employers that provide health insurance.

A Personal Connection

On a sunny day this spring, Azad walked into her patient’s room wearing a colorful headscarf. Just weeks from her due date, Ruby Lin sat on the end of the exam table holding her belly. The two women greeted each other like old friends.

“Hi! You look great,” Lin told Azad.

“Thanks — I’m not where I hoped I’d be,” Azad replied, rolling her eyes and touching her stomach. The doctor gave birth to her fourth child just months earlier and hadn’t lost the “baby weight” she wanted to yet.

This was Lin’s second baby with Azad as her doctor. “I get very nervous about seeing doctors and especially OB-GYNs, and Dr. Azad is the only one I’m comfortable with,” said Lin.

This sort of well-established, personal relationship is Azad’s favorite part of being a doctor, and she considers it a hallmark of independent practice. At the larger practices owned by hospital systems, she said, patients may be more likely to have the doctor on call deliver their baby rather than the obstetrician whom they’ve grown to know over months.

But Azad says running a medical practice in one of the most expensive parts of the country is getting harder. “Rent goes up 3 percent per year. Water and utilities went up 18 percent last year alone. But seven years later, [the insurers] are still paying me the same amount, despite any efforts to negotiate.”

At first, Azad tried reaching out to the insurance companies directly to ask for higher rates. They refused even to meet with her, she said. Then she hired a consultant to negotiate on her behalf. Nothing worked.

“One insurance contract responded saying, ’You don’t even have 2 percent of market share. Basically drop our contract or not — it doesn’t affect us,’” she said. Another insurer told her they couldn’t raise her rates because they had to pay too much to the larger health systems in town, she said.

Independent doctors in the Bay Area are reimbursed, on average, a median $2,408.45 for a routine vaginal delivery, which includes prenatal and postnatal visits, according to the Kaiser Health News analysis of Amino claims data.

That compares with $5,238.13 for the same bundle of services for Stanford physicians and $8,049.84 for doctors employed by University of California-San Francisco.

Health data company Amino provided KHN with median billing amounts for Bay Area obstetricians. KHN used a Medicare provider database to determine where each doctor worked. In cases where the doctor’s employment status was unclear, a reporter retrieved the information by calling the health system or physician directly. KHN then calculated the average median billing amount for a routine vaginal birth for each health system.

The Amino database did not contain many claims from doctors employed by Sutter, so KHN also reviewed OB-GYN charges on several insurers’ online cost estimators. The review found that obstetricians employed by Sutter Health are reimbursed about three times more for the same service than independent doctors, or about $6,452 for a vaginal delivery.

Many doctors are mystified as to why prices vary so dramatically — independent or not.

Same Office, Same Pay

After nearly a quarter-century in independent practice, OB-GYN Ken Weber sold his practice to Stanford, where he now works. His office is in the same place, across the street from Azad. Both physicians admit patients to the same local hospital.

But insurers now pay about twice as much for his services as before.

He still makes the same amount, he said. Stanford’s health system gets the rest.

“It doesn’t make sense to me from the insurance company’s standpoint, because they’re losing all these doctors to the bigger groups and having to pay more. And if they just had negotiated with us fairly, I think we could come to some middle ground,” Weber said.

Weber said he hung on to his independent practice as long as possible, but he grew increasingly frustrated. “It’s hard to know that you’re doing the same work someone else does at Sutter or Stanford or wherever,” yet insurers are paying more for patients to see the other person, he said.

Nonetheless, there have been some real benefits to selling his practice, he added: He no longer has to worry about dealing with billing or maintaining compliance with the new electronic health record regulations.

For their part, the big Bay Area hospital systems caution against oversimplifying the many factors that go into paying for obstetrical care. A Stanford spokeswoman, Samantha Dorman, said the health system incurred significant costs when it integrated new provider groups. For instance, many were not yet on electronic health records and needed updated equipment. Dorman added that Stanford reduced physician charges a few years ago to be more in line with other practices.

A UCSF spokeswoman said that just looking at physician reimbursement rates was misleading because while the system charges more for physician services, it charges less for other hospital services. Overall, she said, their costs are competitive.

For its part, Sutter suggested it was not accurate or fair to judge physician price discrepancies on online cost calculators. According to Burnich of its Medical and Market Networks service, the rates provided are inconsistent and often out-of-date.

The agreements between hospitals and insurers have “gag clauses” barring either party from divulging rates. The bottom line, for many patients, is that it’s almost impossible to determine either the cost or the value of the various health care providers available to them. This is particularly problematic for patients with high-deductible plans, who may be on the hook for a significant portion of those costs.

Meanwhile, the type of consolidation that Azad has witnessed in Northern California is spreading quickly throughout the country, and it is extremely difficult to reverse.

The most consolidated places like Northern California, Pittsburgh and Boston have become a “poster child of what not to do,” said economist Gaynor of Carnegie Mellon. “We should look at places that have consolidated and think about how to avoid that.”

Kaiser Health News correspondent Sydney Lupkin contributed to this report.

The Senate has only a handful of legislative days in September before insurers must make final decisions on 2018 coverage. It may be an impossible task if committee’s hearings over the past two days are an indication.

This article first appeared September 07, 2017 on Kaiser Health News.

By Julie Rovner and Rachel Bluth

Sen. Lamar Alexander (R-Tenn.) has a problem — and not much time to solve it.

The chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee wants to turn the page on the divisive health debate of this summer. He’s been working with the panel’s top Democrat, Patty Murray (D-Wash.), to craft a bipartisan bill aimed at shoring up the individual health insurance market.

Alexander has been looking at a proposal that would please Democrats (and insurance companies) by funding contested subsidies that help moderate-income policyholders pay their out-of-pocket health costs. To please Republicans, he has been pushing a plan to give states more flexibility to set up “reinsurance” pools that would help bring down premiums by limiting insurer exposure for the most expensive patients.

And he has to get the job done with only a handful of legislative days in September before insurers must make final decisions on 2018 coverage.

Alexander may have an impossible task ahead of him if his committee’s hearings over the past two days are an indication.

A bipartisan succession of state governors and insurance commissioners told the committee that there is no time for them to get their own reinsurance programs up and running in order to stabilize the market. What would help in the short term, they said, would be for the federal government to step in and do it — temporarily. “For the first year, you’re going to have to have the federal government help on that,” said Gov. Bill Haslam (R-Tenn.).

But a clearly frustrated Alexander said at the end of Thursday’s hearing that he couldn’t pass that kind of bill. “To get a Republican president, House and Senate to vote for just more money isn’t going to happen in the next two or three weeks,” he said.

That, however, did not convince the governors, who said this money was essential in stabilizing the markets.

“One of our great challenges is to get more people participating in the system; a reinsurance pool is one of the best ways to do that,” said Gov. John Hickenlooper, a Democrat from Colorado.

He and Haslam were echoed by Massachusetts Gov. Charlie Baker and Utah Gov. Gary Herbert, both Republicans; and Montana Gov. Steve Bullock, a Democrat.

Reinsurance provides money to insurers for the sickest and highest-cost consumers. Governors testified that reinsurance would lower premiums, thereby bringing young, healthy people into the risk pool and providing stability to the marketplace.

Alexander has been a proponent of states setting up their own reinsurance pools by applying for exemptions from the Affordable Care Act’s rules to innovate in their markets. So-called Section 1332 waivers are permitted as long as they don’t cost the federal government more money or cover fewer people. He asked in his opening remarks if there was a way to reform the clunky 1332 process to allow states to create their own reinsurance pools.

“Whether it’s reinsurance or an invisible high-risk pool or a stabilization fund — we need to think about what the state share of that should be,” Alexander said.

As written, the health law makes it impossible for states to get waivers for reinsurance pools that could be up and running in time for 2018 enrollment. The waivers require state legislation and six-month waiting periods for final federal approval. The ACA created a federal reinsurance program that ran for three years, expiring in 2016.

Bullock said the federal reinsurance pool lowered premiums by 10 to 15 percent in 2014.

Sen. Maggie Hassan (D-N.H.), a former governor of her state, supported using federal dollars to help states set up their reinsurance programs.

“At least some of the seed money should come from the feds, because the feds are going to save money if they put in place a reinsurance program and premiums go down,” Hassan said.

Without reinsurance, the federal government’s costs for premium subsidies will rise as premiums increase.

But Sen. Chris Murphy (D-Conn.) said it was unlikely that a federal reinsurance program would be ready in time to affect 2018 premiums.

"I think we're on a really tight time frame," Murphy said after the hearing. "Whatever enthusiasm exists in the Senate for a federal reinsurance program might not exist in the House."

Every governor in attendance also advocated for the extension of cost-sharing reduction payments to insurers for at least two years. Those payments, estimated at $10 billion for 2018, reimburse insurers for discounts given to low-income consumers. They are being funded on a month-to-month basis by the Trump administration.

Some Republican senators have denounced both cost-sharing payments and reinsurance as “insurance company bailouts,” but both the governors and the insurance commissioners told the committee that funding them is essential to keep insurers participating in the Obamacare marketplaces next year and prevent a spike in premiums.

Two more HELP Committee hearings are set for next week, on Tuesday and Sept. 14 — the first with health care experts and the second with a mixed panel including doctors and patient advocates. Alexander said Thursday that he wants to reach a consensus about stabilizing the individual health market by the end of next week and pass legislation before the end of September. That is when insurers need to submit their 2018 rates to state insurance regulators.

Large doctor practices, many owned by hospitals, exceed federal guidelines for market concentration in more than a fifth of the areas studied, research shows.

This article first appeared September 05, 2017 on Kaiser Health News.

By Jay Hancock

Hospitals have gone on a doctor-buying spree in recent years, in many areas acquiring so many independent practices they’ve created near-monopolies on physicians.

Research published Tuesday throws new light on the trend, showing that large doctor practices, many owned by hospitals, exceed federal guidelines for market concentration in more than a fifth of the areas studied.

But it goes further, helping answer some of health policy’s frequently asked questions: How could this happen? Where are the regulators charged with blocking mergers that have been repeatedly shown to drive up the price of health care?

The answer, in many cases, is that they’re out of the game.

Doctor deals are typically far too small to trigger official notice to federal antitrust authorities or even attract public attention, finds a paper published in the journal Health Affairs.

When it comes to most hospital-doctor mergers, antitrust cops operate blind.

“You have a local hospital system and they’re going in and buying one doctor at a time. It’s onesies and twosies,” said Christopher Ody, a Northwestern University economist and one of the study’s authors. “Occasionally they’re buying a group of five. But it’s this really small scale” that adds up to big results, he said.

The paper, drawing from insurance data in states covering about an eighth of the population, found that 22 percent of markets for primary care doctors, surgeons, cardiologists and other specialties were “highly concentrated” in 2013. That means that, under Federal Trade Commission guidelines, a lack of competitors substantially increased those doctors’ ability to raise prices without losing customers.

The research didn’t sort physician groups by ownership. But other studies show that large, predominant practices are increasingly owned by hospitals, which see control of doctors as a way to both coordinate care and ensure patient referrals and revenue.

According to one study, hospitals owned 26 percent of physician practices in 2015, nearly double the portion from 2012. They employed 38 percent of all physicians in 2015, up from 26 percent three years earlier.

In the study by Ody and colleagues, only 15 percent of the growth by the largest physician groups from 2007 to 2013 came from acquisitions of 11 doctors or more.

About half the growth of the big practices involved acquisitions of 10 or fewer doctors at a time. About a third of the growth came not from mergers but from hiring doctors out of medical school or other sources.

Federal regulations require notification to anti-monopoly authorities only for mergers worth some $80 million or more — far larger than any acquisition involving a handful of doctors.

Very few of the mergers that drove concentration over the market-power red line — or even further — in the studied areas would have surpassed that mark or a second standard that identifies “presumably anti-competitive” combinations.

But the little deals add up. In 2013, 43 percent of the physician markets examined by the researchers were highly or moderately concentrated according to federal guidelines that gauge monopoly power by market share and number of competitors.

(A market with three practices in a particular specialty, each with a third of the business, would be at the lower end of what’s considered highly concentrated. A market with one doctor group doing at least 50 percent of the business would be highly concentrated no matter how many rivals it had.)

Bigger and fewer doctor practices, fueled largely by hospital acquisitions, do drive up prices for patients, employers and taxpayers, several studies confirm.

Part of the increase results from a reimbursement quirk. Medicare and other insurers pay hospital-based doctors more than independent ones. But another part comes from the lock on business held by large practices with few rivals, Ody said.

“It’s a problem,” said Martin Gaynor, a health care economist at Carnegie Mellon University and former head of the FTC’s Bureau of Economics. “All the evidence that we have so far … indicates that these acquisitions tend to drive up prices, and there’s other evidence that seems to indicate it doesn’t do anything in terms of enhancing quality.”

The American Hospital Association, a trade association, declined to comment on the study since officials hadn’t seen it. But the AHA often argues that “hospital deals are different” and that doctor acquisitions keep patients from falling through the cracks between inpatient and outpatient care.

The FTC has moved to block or undo a few sizable doctor mergers, including an orthopedics deal in Pennsylvania and an attempt by an Idaho hospital system to buy a medical practice with dozens of doctors.

But the agency largely lacks the tools to challenge numerous smaller transactions that add up to the same result, said Ody.

An FTC spokeswoman declined to comment on the study’s findings.

Ody urged state attorneys general and insurance commissioners to look more closely at doctor combos. Sometimes state officials can question mergers overlooked by federal authorities. Or they can block anti-competitive practices, such as when hospitals seek to exclude competitor physicians from insurance networks.

Beyond that, “I hope that people notice this [research], and I hope people think creatively about what kinds of solutions might be appropriate for this,” he said. “I don’t know what they are.”

A physician volunteering at a makeshift clinic in San Antonio shares her thoughts in the wake of Harvey, the first major storm since the federal government revised emergency preparedness standards for hospitals.

This article first appeared September 06, 2017 on Kaiser Health News.

By Shefali Luthra

Dr. Ruth Berggren (center) and other staff from Charity Hospital in New Orleans were evacuated to Fort Worth, Texas, six days after Hurricane Katrina hit Louisiana in August 2005. (Courtesy of Ruth Berggren)

As Dr. Ruth Berggren digests the calamity affecting her new home state of Texas, she admits to some PTSD.

In 2005, she was an infectious-disease doctor at the nearly 3,000-bed Charity Hospital in New Orleans, one of a small number of physicians left managing patients and performing triage in the wake of Hurricane Katrina. She spent weeks and month dealing with the aftermath, before moving to Texas, where she heads the University of Texas-San Antonio’s Center for Medical Humanities and Ethics, part of its Health Science Center.

As Houston begins assessing Harvey’s impact, she’s “constantly comparing and contrasting,” she said. After all, Berggren remembers the power outages and the lack of clean drinking water. She knows firsthand the trauma suffered by the medical personnel trying to keep people healthy under devastating circumstances.

“I remember what it was like to be standing on the balcony of the ninth floor of Charity Hospital looking out over the floodwaters,” Berggren reflected.

This time around, she has been volunteering at a makeshift clinic in a San Antonio middle school, once again treating victims of the storm — elderly patients who had lost their walkers, and people who in the rush to evacuate had forgotten medicines (or perhaps lost track of when they last took a dose).

Storms such as this place a heavy burden on the local health system. Hospitals such as Houston’s Ben Taub Hospital, a Level 1 trauma center, worked to evacuate patients, even as food shortages and flooded streets promised complications for people trying to deliver refuge and health care.

But Berggren has also seen improvements. Harvey is the first major storm since the federal government revised emergency preparedness standards for hospitals, in response to Katrina and 2012’s Superstorm Sandy. Now, health care providers that receive Medicare or Medicaid dollars must have disaster preparedness plans, including relocation strategies for at-risk patients and mechanisms to maintain basic power.

Berggren shared her distinctive perspective last week, drawing on her knowledge of Texas, her memories from New Orleans and knowledge as one of the country’s leading bioethicists. The following transcript has been edited for length and clarity.

Q: What kind of burden does a storm like this one place on local hospitals, and on the health care system?

The first responders are always the people there locally. They’re being affected by the disaster at the same time as the population is. You have sort of a dual role.

Where I saw this burden take its biggest toll was two or three days into the post-Katrina storm, at Charity. The people who had the hardest time were the folks who didn’t know the safety or whereabouts of or well-being of their loved ones.

All the health care providers in Ben Taub now, and other hospitals caring for patients that had to be left behind — this is a very stressful and difficult time.

Q: Does that affect what kind of care they give, while seeing potentially increased need?

You have to start working with much more limited resources. There’s going to be limitations in communications. We’ve already heard about looming limitations for food. Water has been OK, power has been OK — so those are two factors that weigh heavily in Houston’s favor. After Katrina, we lost power. We really didn’t have the ability to use our water supply. It was, in that respect at least, more dire.

However, as the days go by, the rains continue, the flooding continues — supplies are going to run out. There are going to be a lot of logistical hurdles.

Q: Hurricane Katrina shone a spotlight on some of these challenges that can arise at a hospital navigating a natural disaster — are there lessons you think people learned that we’re maybe seeing applied here in Harvey?

It does look like they were far better prepared, with regard to having protection for their power supply and for water in these hospitals.

You can never really be fully prepared. What I recall before Katrina is there was kind of a set of misplaced priorities. We had to all undergo about four hours of training about sexual harassment in the workplace because Tulane was worried about that that year in particular — and had had exactly zero hurricane preparedness. We didn’t even know what Code Gray was.

I think that whole region along the Gulf Coast is much more attuned to the fact that we have to prioritize educating health professionals about disaster preparedness. I see better preparedness in the medical community and I like to think that’s part of the Hurricane Katrina legacy.

Q: What challenges should we expect in the storm’s wake?

There are always going to be vulnerable people, disenfranchised groups of people. If they’re not gotten out and they become further deprived of food and shelter and having their basic needs met, you’re going to see, unfortunately, I fear, the potential for violence. We had the experience at Charity Hospital of getting shot at by snipers, and we never knew who they were. We assumed they were disenfranchised people who had become desperate and been deprived of food or perhaps medication.

It’s going to be very hard to get regular services back up and running. I would say mental health is going to be a big problem. We saw a number of suicides in New Orleans after Katrina. People have a bit of a sense of despair when they become aware of the scope and scale of the disaster.

Post-Katrina it took many, many, many months to see the mental health counselors and psychiatrists return. I would hope that in the intermediate-range and long-range planning for disaster recovery that mental health is given a really high priority.

Next, I would worry about some infectious-disease issues. There’s a lot that’s been written about Houston’s risk for a Zika outbreak. Of course, the way you combat Zika is you get rid of standing water — and what does Houston have right now?

Q: Lots of standing water?

Lots of standing water! They have had a superb proactive public health response up until now. I only hope the state continues to support that.

We have a lot of people living with chronic illness in general. When it’s tuberculosis, when it’s HIV, those people need their medications on a regular schedule, without interruption.

There were a lot of logistical hurdles in New Orleans, post-Katrina, in keeping patients on their full HIV regimens and full tuberculosis regimens. My patients with AIDS and tuberculosis, who were evacuated without their medications — it took a long time before they could get to a place where they really felt they could confidently tell their health care providers what their needs were.

I had AIDS patients contacting me and saying, “Is it OK if I take my pills every other day to make them last longer?” And that’s exactly what you don’t want to do.

Q: With people saying recovery will take months and even years — what sort of long-term impact might we see on the health system in Houston, and on local public needs?

Physical infrastructure will take time to repair, but you can still provide funding to help people access care.

One vulnerable group that I would like to highlight is pregnant women. Between 2010 and 2014 we saw a 79 percent increase in maternal death [in Texas].

Houston doesn’t have to have all the floodwater evacuated and the buildings pristine to provide health care to vulnerable people.

Q: Having moved from Louisiana to Texas, what is it like for you watching another hurricane play out in your new home?

I’m comparing and contrasting constantly. I’m always checking the news. I’m checking in with my resident who’s assigned at Ben Taub. I’m seeing things that are being done a lot better and I’m seeing things that I wish could be done differently. …

Disasters bring out the best and the worst in people. We always want to look to criticize and identify the mistakes, but these are also opportunities to see how good we really can be.

The capacity of our people to take care of one another and to rise to the occasion and to go beyond themselves is just so inspiring.