government

Health industry consolidation raising prices, lawmakers say

Republicans blame health reform for mergers, but some experts find fault with pay systems.

By Charles Fiegl — Posted Sept. 15, 2011

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Rapid consolidation in the health care industry has a key panel of lawmakers examining federal antitrust laws and physician payment models.

The House Ways and Means health subcommittee held a Sept. 9 hearing to gather testimony on the impact of hospitals acquiring physician practices and insurers dominating community health care market shares. Lawmakers said these developments have caused higher prices and increased spending on health care by patients, businesses and governments.

Rep. Wally Herger (R, Calif.), the subcommittee's chair, pointed to research showing that when hospitals merge, the prices charged to insurance companies increase. But consolidation does not necessarily lead to greater efficiency and improved quality of care, he said.

"When hospitals purchase physician groups, hospitals are able to further increase revenue by controlling referral patterns and creating a situation in which they could pressure their physicians to perform more procedures," Herger said. "Similarly, insurance plan consolidation leaves consumers with fewer coverage options and providers with fewer carriers paying claims."

He blamed the health system reform law for making a challenging situation worse and prompting more consolidation in the marketplace as companies look to strengthen their positions before federally mandated coverage expansions.

Integration between physicians and hospitals peaked in the mid-1990s, said Martin Gaynor, PhD, a professor of economics and health policy at Carnegie Mellon University in Pittsburgh. But the number of hospitals employing physicians has continued to grow steadily.

In some communities, a majority of physicians are employed by hospitals, said Paul Ginsburg, PhD, president of the Center for Studying Health System Change in Washington. Some experts have perceived this as a step toward new payment delivery reforms, such as accountable care organizations and bundled payment models, but that trend preceded health reform law changes.

Hospital employment of physicians is designed to "garner more patient referrals, expand hospital specialty service lines and increase market power with providers," Ginsburg said. "This is a highly attractive strategy today under volume-driven fee-for-service financing. It's also a potential asset for integration, but to do that hospitals would need to rework the compensation incentives that are now focused on volume."

As a result, the current environment is causing prices to rise, because hospitals can negotiate higher payment rates for services than smaller groups of physicians can, he added.

Antitrust laws have prevented physician practices from collaborating to negotiate payer contracts unless they are financially or clinically integrated. Rules for clinical integration are "unnecessarily restrictive and ultimately prohibitive" to physicians who wish to come together and participate in new health care delivery models, the American Medical Association said in a statement to the subcommittee.

"It is time to update these policies to allow physicians in all practice sizes the ability to lead and participate in innovative new models of care while protecting patients from anti-competitive practices," said AMA President Peter W. Carmel, MD.

David Balto, a senior fellow with the Center for American Progress Action Fund, recommended that lawmakers eliminate the McCarran-Ferguson Act, which exempts insurers from a range of federal antitrust laws. Legislation to repeal the act passed the House by a large margin in 2010, but it has not received a vote in the Senate.

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