Thursday, September 05, 2013

Calling the trustbusters!

The case for market concentration driving higher health care prices, which could be predicted by virtually any economist, is being proven over and over.  It happens in the UK.  It happens in the US.

A story in Modern sets forth the latest study, by the Center for Studying Health System Change, documenting the phenomenon.  The lede:

Bargaining leverage, not the cost of providing complex care, is the main reason why some hospitals can demand prices twice as high as their competitors' and still get contracts to treat privately insured patients, according to a new study.

The analysis by the Center for Studying Health System Change of actual payments to hospitals and physicians by private insurers in 13 U.S. cities found that the most expensive hospitals got rates as much as 60% more than the lowest-priced competitor for inpatient care, and prices that were double the competition for outpatient care. 

And here's a familiar argument (one that our friends at Partners Healthcare habitually made about the Eastern Massachusetts market):

Expensive hospitals have long argued that providing medical education and the best equipment available drives their costs. But the study authors cast doubt on that because their research was based on how much each hospital's rates exceeded Medicare payments for the same services. Since Medicare rates are adjusted to reflect patient case-mix complexity and the cost of capital equipment, those factors shouldn't explain why some hospitals get more than others relative to Medicare's rates.

Let's recapitulate, citing a conclusion noted in a recent New York Times article:

If there is one thing that economists know, it is that market concentration drives prices up — and quality and innovation down.
The body politic has chosen to look the other way.  Will greater price and outcome transparency make an iota of difference when the largest provider group in a given metropolitan area dominates the landscape?  I doubt it, in our lifetimes.  The article cited above notes:
The entities with the most bargaining power, and thus the highest mark-ups, are the “must-have” hospitals—that boast good reputations, large numbers of services and desirable locations, the authors found. “Even in metropolitan areas with many competing hospitals and hospital systems, these must-have hospitals can command unusually high prices,” they wrote. 


Barry Carol said...

What makes a hospital a “must have” and how might that perception or assessment change if patients better understood the connection between undeserved higher prices that powerful hospitals command because of their market power, the cost of employees’ insurance premiums, including the employer contribution, and the stagnation of their wages? If patients knew the differences in actual contract reimbursement rates among local hospitals for the same service and comparable quality, they might not only be willing to go to a less expensive facility, especially for routine care, they might even insist on it.

Secondly, why don’t the DOJ and / or the FTC do more to break up these local hospital monopolies and oligopolies? I also think there is a lot more that employers and insurers can do to educate individual patients about this issue and it would be helpful if insurers would support public disclosure of actual contract reimbursement rates.

Paul Levy said...

Barry, on your first point, yes, in theory. But in practice the market concentration also includes the referring physicians, who now (because of risk contracts) have a increasing financial interest in referring within their system. What patient/consumer is likely to say to his or her doctor, "Well, no, I'd rather go to ABC hospital for my procedure because it costs less"? Especially when it does not cost the consumer less.

Maybe someday, but right now there is just too much friction in this "marketplace" to result in much consumer choice.

On the second point, they don't do it because of a perceived lack of authority. More importantly, this market concentration is inherent in the policy framework desired by the Administration. No Attorney General or FTC Commissioner is gong to fight these battles when the President and his HHS secretary support the trend. (And you certainly can't expect the Republicans to jump on the antitrust enforcement bandwagon.)

At the state level, attorneys general are often beholden to the powerful political interests that are represented by those on the boards of trustees of the major hospitals.

The people who should be demanding change are the employers, but this is not an item that rises up on their to-do list. They often fear that their employees will revolt if their choices are limited.

Some employers, though--particularly the large self-insured ones--are starting to move in the direction you posit.

Bob said...

Paul, thanks for continuing to bang the drum on the unconscionable, continuous profiteering of hospitals. It is racketeering, basically. And as with all corporate situations in modern America, there is no one to stand up to them. The insurance companies are essentially co-conspirators -- the higher the prices go, the higher they can push their own profits and salaries and bonuses. It is precisely like Detroit, where the incompetent managers were happy to see the union make more money, because they simply used those salaries as a base to calculate their own, and as we say, "and we know what happened there."

And the government! Good luck with them.

As you say, despondently, not in our lifetime. I have to agree.

It also reminds me of the demise of the politics of thought, killed by the politics of money. Elizabeth Drew published article after article in the New Yorker in the 1980's about how the need to raise money was diverting all the attention of senators and congressmen. She looked at the math -- how much had to be raised, how much time on a weekly basis had to be spent raising that money, and how there was literally, literally, time for almost nothing else. But Cassandra is not listened to. The urgent constantly drives out the important.

It's true, but very depressing. People of conscience and better knowledge need to keep on pounding that hammer, whether or not the nail goes in, just watch the truth, analyze, and say the truth.

Anonymous said...

I also think we must differentiate who is concentrating to what end. So far it is mostly groups of the richest, most powerful hospitals working together building networks, which garner those "excess" profits. They are competing on Prestige and high prices, which provides the resources to build the networks.

(I would guess most of the networks today fall in this category since it is the rich academic medical center hospitals in each region that have the resources to attract community hospitals into their networks....certainly true in Boston with Partners, UMass, & BID each building significant networks

(BID's network is always includes Milton, Needham, Jordan, Brockton, Cambridge Health Alliances two hospitals, Anna Jaques, Lawrence General, and the Caregroup hospitals are never included....Mount Auburn and New England Baptist.)

versus networks of low cost hospitals which don't compete on prestige but on quality and COST! as Tufts MC and Vanguard appear to be doing.

Steward falls in between, since according to Paul, its referral partner is Partners - MGH and B&H.

so for instance, as a hypothetical if Steward was bought by Vanguard/Tenet, to make its new referral partner TMC or TMC and someone else there might be greater concentration BUT ALSO greater competition for the behemouth -- Partners.

Guess I am saying not all concentration is bad depends if a network is competing on Prestige & high prices or Low Cost and High groups like Vanguard and TMC appear to be doing...

Anonymous said...

The problem that I see with Prestigious high price hospitals is that - they are buying up all these community smaller hospitals- and the nmarketing these smaller hospitals with their BRAND- in order to increase presence in areas outside of Boston. The problem is that the BIG hospital pours all the money into profitable suburban specialty services ie... cardiac surgery, vascular surgical centers- but the regular inpatient care and services at the community hospital go way down in quality-and of course that community hospital is losing money - but the specialized surgical centers are money makers- making the BIG hospital huge profits despite allowing sub par inpatient care to to continue at the community hospital. Case in point - NSMC taken over by PARTNERS (MGH), In my experience inpatient care continues to go downhill at Salem Hospital, and nobody cares because PARTNERS overall is making money- that's the problem with takeovers and concentration- bad care is allowed as long as main division is making money- losses are absorbed. Government needs to ensure that care at each institution is monitored separately- and BIG OWNER hospital is fined heavily for bad care, and hospital financial losses in my opinion are often indicative of bad inpatient care.

Barry Carol said...

Paul –

Thanks for your response which makes perfect sense.

I agree that the employers need to get more involved here including federal, state and local government employers which are paying many billions annually for commercial health insurance to cover their employees and most of their retirees, especially those not yet eligible for Medicare.

I think employers are grossly underestimating the importance of employee engagement which means helping them to understand how much health insurance is costing per person and per family, how fast it’s growing, the impact it has on crowding out the ability to raise wages as much as they could if healthcare costs weren’t growing so fast and the large contributions dominant hospital systems and physician groups are making to the rapid growth in healthcare costs relative to general inflation in the price other goods and services.

I also believe employers should do more to implement reference pricing for services, tests and procedures that best lend themselves to the concept such as elective surgeries, imaging, colonoscopies and the like and to provide employees with information about how much more various procedures cost, at least in percentage terms, at the expensive hospitals vs. the lower cost hospitals.

Finally, the mainstream media can play a constructive role here in shining a bright light on the premium prices charged by dominant hospital systems based solely on their market power and not the quality of care provided. A good in depth series on this issue could win a Pulitzer Prize.

Anonymous said...

On the one hand, one sees much evidence that integrated care can be very successful in rebuilding and maintaing health through the continuum of prevention, outpatient, inpatient, skilled nursing, and a return to a support home living. If that kind of care better enhances health, we would like to see more integration and perhaps consolidation with it. In some cases, consolidation may be the most likely route to eliminating the systems and data problems that prevent smooth continuity of care from end to end. On the other hand, I have no doubt that what you say is true about the impact of consolidation on cost. Would this situation not suggest that a regulated utility model be a solution to consider? One imagines that the same difficulty faced our country in the early days of electrical generation - bigger systems deliver better service with more efficient use of scarce capital and real estate along with monopoly pricing power. We haven't executed well with the utility model for internet service but gas and electrical service utility models work pretty well, at least where I am.

Thanks for the great blog.


P. S. Regular season starts here tomorrow - back on the pitch with whistle in hand for me...

Paul Levy said...

Thanks, Tom. That's exactly right.

Season starts here, too: Coaching u12 girls first and then reffing later in the day!

Anonymous said...

Apropos of Tom's comment, here is a link to an interesting NEJM article (free full text) relating consolidation and anti-competitive behavior to recent incentives for coordination of care, as Tom points out:

nonlocal MD

Anonymous said...

Utilities are generally high fixed cost industries with long gestation periods and "lumpy" large investments needed to get economies of scale. Some regularity in pricing therefore helps both producers, make those large long lead time investments, and consumers to ensure they are not gouged as the industry goes through periods of over or under capacity utilization.

Non of this fits the healthcare industry.

In healthcare there is another opportunity. In the Boston market those who have followed the industry have heard Steward and others discuss community hospitals taking market share from academic medical centers. It has not happened because consumers are not yet responsive enough to price signals.

Let me give you an example. In Boston we have two large academic medical centers MGH and Brigham & Womens. Most of their patients have routine care: broken arms, babies born without complications, someone has the flu etc that could be done in community hospitals at 30% to 100% less cost. These most expensive hospitals are also the largest hospitals - in terms of beds - in the Boston area. Childrens Boston has the same issue in their speciality. Some other academic medical centers have this same phenomena to a lesser degree.

Many patients believe these more expensive care is better. All the statistics we have available say in most cases care at these academic medical centers for routine care isn't better than that at the much less expensive community hospital.

This is not a difficult problem to solve. But health care consumers in many cases have no financial incentive to choose the less expensive equal quality option.

With limited networks, tiered networks and reference pricing becoming more prevalent this will change. But our state insurance commission needs to allow significant discounts by less expensive health networks to draw the patients from the "overpriced" hospitals.

What we need is real price signals for consumers of health care and clear discussion by our media that the emperors at MGH & B&W have no clothes when it come to health care quality. There is no evidence that they are any better at routine care than community hospitals.

Finally and most importantly, regulation of pricing would help the largest and most expensive hospitals. You might ask how. I guess I am cynical, but I think those with the most money and most "academic influence" for lobbying etc will win that game. And we all who who that is...

Barry Carol said...

Electricity and gas are uniform products though there can be some variance in the reliability of one utility system vs. another. As a consumer, I don’t know or much care whether my electricity is being generated by plants using coal, oil, natural gas, nuclear, hydroelectric, solar panels or wind. I do care that my utility’s local transmission and distribution system is reliable and that there is enough capacity to meet likely peak demand plus a reserve margin. I also want my rates to be reasonable.

For hospitals, it’s not as easy to determine whether or not they’re being efficiently run and how much of what type of capacity is needed across the system. Even in Maryland, which has an all payer system, there is often what is called unregulated space, such as a new imaging center, on the same campus as the rest of the hospital. Services, tests and procedures provided in the unregulated space are not subject to price controls.

In theory, I suppose we could require hospitals to price all of their services based on the same percentage of Medicare which would then be publicly disclosed. So, if Partners, for example, believes it can get away with charging 250% of Medicare across its system, including clinics and other outpatient facilities, everyone from patients to referring doctors should know that up front.

Alternatively, we could provide insurers with an anti-trust exemption so they could all negotiate with providers as a group and all pay a given provider the same price for the same service. Hospitals in regions with higher medical input costs for wages and benefits, utilities, insurance, etc. would be paid more than hospitals in lower costs regions, including within the same state. . Academic medical centers might have their costs related to medical education and research covered by general tax revenue.

In a given region, hospitals would presumably compete on quality but not price because price would be uniform. This is essentially the system most European countries use. Personally, though, I think clearly demonstrated superior quality should be rewarded with somewhat higher prices as well as more patient volume.