Hospitals hike prices for evaluation and management services

Hospital charges for services like emergency department visits and initial hospital care continue to grow faster than other types of care, according to a new study.

Hospitals boosted their median charges for evaluation and management services by 7% and related negotiated rates rose 5%, according to FAIR Health's analysis of November 2020 to November 2021 high-frequency claims from their database of more than 36 billion claims. Hospital E/M charges and negotiated rates—excluding facility fees—increased the most over that span out of the six categories FAIR Health studied: office E/M services; non-E/M services like psychiatric care, dialysis and immunizations; radiology; surgery; and pathology and laboratory.

Price inflation for hospital E/M services outpaced all other categories the not-for-profit research firm studied for the fifth-consecutive year. Related median charges jumped 6% and negotiated rates ballooned 10% from November 2019 to November 2020.

"It will be interesting to see what extent things will change, like with what we saw with the No Surprises Act," said Robin Gelburd, president of FAIR Health.

The No Surprises Act aims to curb healthcare costs by protecting patients from surprise bills, like when someone is unexpectedly charged for an out-of-network specialist in an in-network facility. The site-neutral payment policy, where Medicare pays hospital-based outpatient departments and independent physician offices the same rate for E/M services, and the price transparency rule have similar goals. Yet, many hospitals are not complying with the transparency mandate.

In addition to federal law, there have been an array of state-led interventions that look to hold health systems in check through price caps and cost growth benchmarks. But many of these endeavors have yet to meaningfully limit annual price hikes, policy experts said.

The increase in hospital charges and negotiated rates indicates that there continues to be a lack of competition, said Barak Richman, a law and business administration professor at Duke University. The data may reflect hospital acquisitions of physician practices, which tend to lock-in hospital market share and their control of patient flows, he said.

"The rise in hospital charge and allowed amounts suggest we're still going in the wrong direction," Richman said. "That the rate of rise is faster than the other categories means that we continue to accelerate in the wrong direction."

Charges and negotiated rates for hospital E/M services have steadily increased since 2012, outpacing all other categories. Related charges jumped 28% and negotiated rates surged 26% from May 2012 to May 2017, FAIR Health data show. Hospital E/M charges and negotiated rates both increased 7% from November 2017 to November 2018.

Hospitals have acquired more physicians in recent years. Nearly 19,000 physicians joined hospitals and health systems between Jan. 1, 2019 and Jan. 1, 2021, leading to a 5% increase in the share of doctors employed by hospitals, according to an Avalere Health report commissioned by the Physicians Advocacy Institute, a not-for-profit group that advocates for fair and transparent payment policies. Hospitals also acquired 3,200 physician practices during that time, an 8% increase.

Those transactions tend to increase healthcare costs. A pair of 2021 studies published in Health Affairs found doctors employed by hospitals were more likely to order inappropriate magnetic resonance imaging tests and that overall testing volume spiked after hospitals acquired physician practices.

Another study published in Health Affairs found that prices for specialty care and primary care increased by 9% and 5%, respectively, as hospitals employed more doctors. That trend was correlated with a spike in premiums.

"There are a variety of local dynamics that might drive this, but a lot of things have to do with consolidation and providers' ability to demand price increases over time," said Lovisa Gustafsson, vice president of the controlling healthcare costs program at the Commonwealth Fund. "Higher prices are incorporated into higher premiums, cost-sharing and everything patients have to pay. A lot of policymakers are thinking about what we can do to counteract this and temper growth because it is not sustainable."

The Federal Trade Commission asked six health insurers for claims data as they study the impact of physician consolidation and revamp their vertical and horizontal merger guidelines. Some states are also trying to prevent hospitals from forcing anticompetitive contract clauses onto insurers, but those efforts may have been handicapped by the recent jury verdict that came out in Sutter Health's favor, antitrust experts said.

California-based Sutter successfully defended claims that it illegally forced insurers to include all 24 of its hospitals in their contracts. Sutter did not force health plans into contracts that prevented them from steering patients to lower-cost, non-Sutter hospitals, the jury found.