Hospital consolidation drives prices for privately insured, data suggest

The liberation of long-hidden data on what private insurers pay for medical services may increasingly put providers in an unflattering light as they bulk up through mergers and acquisitions.

Health policy researchers have generally turned to Medicare to study variations on healthcare spending in the absence of price data from private insurers, and their conclusions focused on the volume and intensity of services rendered.

But commercial health plans that cover workplace benefits for millions of Americans pay higher prices to hospitals that have little or no competition, according to a study that raises questions about how to slow U.S. health spending amid a wave of consolidation.

In a study published by the National Bureau of Economic Research, researchers analyzed health spending across multiple U.S. markets and compared the numbers for Medicare with claims data for 88 million patients with employer-sponsored health insurance.

Private insurance prices were 15% higher when hospitals had no competition compared with markets with at least four hospitals. That amounts to a difference of about $2,000 per admission, said Martin Gaynor, one of the researchers and former director of the Federal Trade Commission's Bureau of Economics.

“Prices have a lot to do with spending, and a lot of what's driving price is the difference in the competitive market,” Gaynor said.

The findings are significant as hospitals across the country continue a deal binge that has consolidated markets and created regional giants.

Leaders of the merging hospitals and systems routinely say the strategy is necessary to meet changes in federal policy that create a financial incentive for hospitals to control more of the market. State and federal antitrust enforcers have argued otherwise. The Federal Trade Commission has moved to block three hospital deals in the past two months, including a challenge announced Friday seeking to derail the merger of Advocate Health Care and NorthShore University Health System in Illinois.

But the “horse may be out of the barn” in markets that are already concentrated, said Thomas Greaney, a law professor at St. Louis University. “Antitrust law has no remedy for high prices” after deals transpire.

Prices were also higher even with some competition among providers. Markets with two hospitals had prices roughly 6% higher than those with four or more hospitals. Three-hospital towns had prices about 5% higher than those with at least four hospitals vying for business.

The study also found that spending for private patients often diverged from Medicare spending.

Hospitals cannot negotiate with Medicare to raise prices, and researchers found that how much care patients get determines how spending varies across markets. That result is not news. Medicare spending has been closely studied for years for clues to the nation's abnormally high medical costs when compared with other nations.

Private health spending has been much harder to study and only in recent years have regulators and the business community forced more disclosure. For the new study, researchers used claims data provided by Aetna, Humana and UnitedHealthcare to a not-for-profit health spending research center called the Health Care Cost Institute.

For employers and households, higher prices in less competitive markets amount to higher premiums or bigger bills under high-deductible health plans. “That's a substantial amount of money,” Gaynor said. “Depending on where you live, that's a couple of mortgage payments. For many people, that amount of money would wipe out their savings in one fell swoop.”

Cities with higher premiums on the ACA's insurance exchanges appear to be cities with high price hospitals, said Cynthia Cox, associate director of health reform and private insurance at the Kaiser Family Foundation.

For policymakers, that suggests more effort is needed at the state and federal level to promote more competitors in each market and more tools for consumers to choose among competitors.

“If you look at why healthcare spending is such a problem in America, it is primarily driven by price,” said Dr. Ashish Jha, a professor at the Harvard T.H. Chan School of Public Health.