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Physician groups, hospitals seen driving health care costs in California

While health plans held the power in the 1990s, that is shifting, according to a survey of health industry employees.

By Doug Trapp — Posted March 17, 2010

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Hospitals and physicians in some regions of California have gained significant power over their private plan pay since the 1990s, according to interviews with about 300 people in the health care industry in California.

The clout exercised by certain physician groups and hospitals calls into question the ability of integrated care and global payment models to contain health care cost increases, according to the study, "Unchecked Provider Clout in California Foreshadows Challenges to Health Reform," published online Feb. 25 in Health Affairs. The report is based on interviews with people in six regions of the state.

California health insurers in the 1990s helped limit premium increases in part through capitated pay. While some group practices and dozens of hospitals closed, many of the survivors consolidated, according to the report. Physician-hospital alliances also formed across some regions. Meanwhile, patients reacted negatively to HMOs with limited care networks.

Now many say health plans no longer are able to negotiate modest pay increases with certain hospital and physician networks, according to the study. But physicians in general were less likely than hospitals to use their clout to get the maximum pay possible.

"What we are seeing here is the haves and the have-nots," said Robert Berenson, MD, article co-author and a fellow at the Urban Institute.

More stringent enforcement of existing antitrust laws would not have an effect, because antitrust law focuses on local market concentration, and this power extends across regions, Dr. Berenson said. "They're not doing anything illegal."

Implementing accountable care organizations might not help, either, the authors suggest. ACOs are alliances between hospitals and physicians to coordinate care and share in any health care cost savings. But health care costs have increased in California since the 1990s despite the presence of independent practice associations and multispecialty group practices, both of which are ACO predecessors.

Allowing a neutral third party to determine prices might help control health care cost increases, the study authors suggest.

California Medical Assn. spokesman Andrew LaMar said the report does not paint a complete picture of the health cost drivers in the state. He noted that health plans are still very powerful: Five insurers make up 86% of the state's market, according to filings with the California Dept. of Managed Health Care. Also, California has some of the more efficient care delivery in the country, according to a December 2009 Medicare Payment Advisory Commission analysis.

California Hospital Assn. spokeswoman Jan Emerson said hospitals in the state face costs that other hospitals do not, such as the state's earthquake compliance requirement and the nation's only nurse-to-patient staffing law.

The article is available online (link).

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