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AHIP details market dominance of hospital systems

The report comes as insurers call for ACO rules to guarantee that "provider consolidation" doesn't drive up health costs.

By Emily Berry — Posted June 16, 2011

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Health insurance trade group America's Health Insurance Plans released research June 8 that it said supports its position that hospital systems are growing more dominant in their markets. The research follows years of reports on the growing consolidation of health plans, including market competition surveys released by the American Medical Association.

The idea that doctors and hospitals are behind cost increases has been a consistent theme of AHIP's public position on reform and health care public policy for years.

AHIP's statements come as others, including the American Medical Association, put out reports and statements showing increasing health plan market consolidation, and stating that it is a reason why premium rates have been going up even as physicians have had to accept lower rates.

According to AHIP, 80.3% of 335 markets studied would be considered highly concentrated by the Dept. of Justice and the Federal Trade Commission's Herfindahl-Hirschman Index. The agencies use the index as a guide to determine whether to approve mergers.

AHIP said that weighting by admissions -- thus, giving more weight to larger metropolitan areas -- the typical American would live in an area where hospital systems would control more than 60% of beds, with two-thirds of system beds controlled by organizations with multiple hospitals in one market.

The research -- originally conducted at the invitation of the Institute of Medicine and recapped and explored in more detail for AHIP -- did not draw a direct line between hospital consolidation and health costs (link). (See correction)

Instead, it cited a January 2010 report by the Massachusetts attorney general's office, which after a yearlong investigation into the drivers of cost in health care found that independent of patient mix and quality of care, health system market leverage increased prices.

However, 2009 research commissioned by AHIP found that hospital consolidation between 1997 and 2006 drove up the country's health care spending by one-half of a percentage point -- $10 billion to $12 billion annually.

Cory Capps, PhD, a former economist with the U.S. Dept. of Justice and a partner at consulting firm Bates White, worked on the 2009 report and the one released in June. At a June 8 news conference arranged by AHIP, he said the "takeaway" of his research was: "Hospital market power can drive price increases in some cases. Some -- not all -- mergers are likely to result in price increases."

In the current report, Capps noted that the average HHI score for the markets studied went up 11% between 2006 and 2009.

He used annual survey data from the American Hospital Assn. to compile market figures. The AHA said no one who had read AHIP's report was available for comment.

AHIP is particularly concerned about consolidation and with potential antitrust enforcement -- or lack thereof -- if hospitals and physicians join forces as accountable care organizations. Capps' research was released at the same news conference where AHIP published a letter it sent to the Centers for Medicare & Medicaid Services in response to proposed rules on ACOs.

"The antitrust agencies should modify their proposed antitrust policy statement to minimize the potential risk of increased prices due to provider consolidation," AHIP said in the letter.

Hospital consolidation is not a new concern, Capps said. The last major wave of concentration came in the late 1990s, so that by 2003, he said 90% of people in "populous" places sought care in an area where the hospital market qualified as highly concentrated.

Years of research by the American Medical Association have outlined that the market for health insurance is highly concentrated in virtually every metropolitan area of the country. In its most recent update, based on enrollment data from Jan. 1, 2008, the AMA reported that one insurer controlled 30% or more of nearly every market.

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