Idaho, famous for its pine forests, crystalline lakes and baking potatoes, has a scant 1.6 million people spread over its 82,643 square miles.
Yet it has seized center stage in setting national healthcare economic policy.
Its outsized influence comes from a couple of recent court decisions. Last week, the U.S. Supreme Court ruled against Idaho providers in Armstrong v. Exceptional Child Center Inc., saying they had no right to sue Medicaid agencies over low reimbursement rates. Such challenges are common in large states such as California and New York.
With that ruling, state governments now will have freer rein to set Medicaid rates, which are always the lowest among payers. Protests that it will drive providers from the program or trigger higher prices for other payers to make up the losses—so-called cost-shifting—went unheeded.
The ruling is especially disturbing when viewed in the context of recent calls in Washington to turn Medicaid into a block grant program. If states are allowed to set their own standards on what services to include in the program, and then are allowed to set unchallengeable rates on those services, it will inevitably lead to severe limits on poor people's access to services in many areas of the country.
Perhaps Justice Antonin Scalia and his four colleagues in the court's majority were thinking robust price competition would take care of those problems. Boise-based St. Luke's Health System was back in court last week challenging a ruling by a three-judge panel in the 9th U.S. Circuit Court of Appeals that forbade the system from acquiring a large physician practice in its service territory.
The system, which claims the merger will facilitate greater care coordination and lower costs, wants the full appeals court to overturn the decision. The Federal Trade Commission had successfully challenged the merger on traditional antitrust grounds.
The FTC is looking more like a regulatory agency with a hammer in search of a nail. Last week, it sought more information from two Illinois health systems preparing to merge—Advocate Health Care and NorthShore University HealthSystem—because their service territories are adjacent to each other.
“We now also hear growing concern that provider consolidation in non-overlapping product or geographic markets may also lead to higher prices,” FTC Chairwoman Edith Ramirez told attendees at a recent workshop on healthcare competition.
Where's the evidence of that? Consolidation within healthcare markets has been going on for decades. Not only are a large majority of provider markets already highly concentrated judging by traditional antitrust measures (the Herfindahl-Hirschman Index—don't ask), but so are a large majority of insurance markets (insurers are the counterparty in price-setting negotiations with providers).
A study to be published in an upcoming issue of the Journal of Healthcare Economics found that providers in 85% of 381 distinct U.S. markets met the FTC standard for being highly concentrated and, theoretically, merited antitrust scrutiny. Insurers weren't far behind—72% of markets were judged as highly concentrated. In 41% of markets, both providers and insurers met the FTC standard.
You'd think those would be ideal conditions for out-of-control price setting by friendly co-monopolists. And perhaps that helps explain why healthcare costs raged out of control for decades, and in the first eight years of this century averaged 5.2% and 5.5% per enrollee a year for private insurers and Medicare, respectively.
But that hasn't been the experience since passage of the Affordable Care Act, which, if anything, accelerated provider consolidation. From 2010 to 2013, costs per enrollee rose only 1.4% for the privately insured and fell 1.0% for Medicare beneficiaries.
It's not all because of declining volume, although that is a contributor. The most recent price report from the Altarum Institute found hospital prices fell 0.1% in January, the only month of decline in the index's history. Hospital prices rose just 1.2% for all of last year, no different than the overall consumer price index. “The long predicted hospital price growth due to consolidation is nowhere to be found!” the institute's issue brief exclaimed.
Insurance company profits are soaring with enrollment from the ACA. Yet there is still no evidence that they are using their market power to extract high premium prices. Employer health insurance premiums, as reported by the Kaiser Family Foundation, rose only 3% last year, the lowest since Kaiser began conducting its surveys.
Consolidation is a concern everywhere except in the data.