Monday, February 01, 2010

Hospital Monopolies Get Pushback

From the AMA Medical News:
A Peoria, Ill., ambulatory surgery center will get its chance to try to prove allegations that the dominant area hospital improperly manipulated an exclusive contract with an employer health plan to edge the surgicenter out of the market. Without addressing the case's merits, the U.S. District Court for the Central District of Illinois on Dec. 30, 2009, allowed Peoria Day Surgery Center's antitrust lawsuit to proceed to trial. The court said it heard enough evidence that OSF Saint Francis Medical Center's actions could harm local competition and, ultimately, health care access. The trial is expected to begin March 8.
It is no secret that monopolies can lead to higher health care costs, but how that occurs is interesting. From a report by the Attorney General of one of the highest health care cost states in the US, Massachusetts:
... our preliminary review has revealed serious system-wide failings in the commercial health care marketplace which, if unaddressed, imperil access to affordable, quality health care. In brief, our investigation has shown:
  1. Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and amongst providers offering similar levels of service.

  2. Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the population being served, (3) the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or research facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities.

  3. Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.

  4. Variation in total medical expenses on a per member per month basis is not correlated to the methodology used to pay for health care, with total medical expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis.

  5. Price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts.

  6. The commercial health care marketplace has been distorted by contracting practices that reinforce and perpetuate disparities in pricing.
Not to say that adding a single doctor-owned surgery center is going to change downstate health care pricing much since patients remain sheltered from what is actually being paid by insurers for their surgical procedures. But as patients bear a increasingly larger portion of their health care costs, demands for transparency of pricing for elective procedures will mount. Further, as long as competition between centers exists, the wanton nature of health care service price increases by hospitals who monopolize markets has at least a snowball's chance in hell of slowing.

But then again, I'm sure that the Massachusetts AG's finding doesn't pertain to other areas in the United States...


h/t: WSJ Health Blog


Keith said...

Given the increase in co pays and deductibles as well as HSAs, I don't think you can claim that patients are totally sheltered from increased costs. Only Medicare and the so called Cadillac plans provide complete shelter.

The Mass story has been kicking around for some time, but as I understand it, this is one of the first times that price increases are being discovered as the driver of increased costs, probably because the market in Mass. is saturated now that there is near universal insurance (surgeons can only take out so many gall bladders).

What I fail to understand is why insurance companies do not tier their payment structure much like they do there formulary plans which have worked successfuly to iencourage more generic use. If the patient knew he was going to pay alot more in co pays and deductibles if he selcted a higher cost hospital, then he might opt to have surgery or testing at the lower cost place. It seems so elementary for insurance companies to do this to fight back against health care groups that leverage their prestige and geographic location. One wondors if there isn't some tacit collusion going on that prevents this.

Anonymous said...

" If the patient knew he was going to pay alot more in co pays and deductibles if he selcted a higher cost hospital, then he might opt to have surgery or testing at the lower cost place"

Or far more likely, he might opt to go to an insurance company that prefers his preferred provider. Insurance providers are interchangeable to patients if the benefits are similar; Doctors and hospitals are not. Insurers are perfectly aware that if patients in MA are given the choice to dump Aetna or the Harvard teaching hospitals, they're not going to come out on the winning end.

Keith said...

But the truth is this would be a good strategy for insurers to offer this prestigous hosptital in its network, albeit at a higher price. Insurance costs could be reduced as the result of cost savings acheived, which would multiply if patients were directed to better value providers. Remember, who purchases insurance in most cases is not the employee, but the employer, who might be enticed by the potential savings on premium. If quality is the same or even better, then it is not a hard sell to employees and makes infinite sense to use to restrain costs. Keep in mind that if you don't use a Partners affiliated hospital already, these employees are actually subsidizing the high costs of Partners through higher premiums; they would very much enjoy seeing their co-pays and deductibles decrease at the providers they are currently using, so you will have some employees who will see the change in a positive light. It is just the current Partners patients that will see increased costs under this senario.

If something is not done along these lines, then we could ultimately anticipate that Partners could become the only health provider in Boston, using its extra cash to gobble up the competition, and then command whatever price it deemed appropriate; then watch the prices go sky high!