Payers have failed to reduce healthcare cost growth in the employer group market in six cities because of hospital and physician consolidation, a new study found.
Policymakers could do more to strengthen employer and insurance moves to drive down prices, said researchers at Georgetown University's Center on Health Insurance Reforms. But if incremental policy moves aren't successful, that could boost support for more dramatic steps such as government rate-setting, they concluded.
"After talking to all these employers, health plans, and providers, there doesn't seem to be a clear market-based solution and it almost seems like government regulation is necessary to get this under control," said Katie Keith, an adjunct law professor at Georgetown and one of the report's authors.
Over two years, the researchers interviewed a variety of stakeholders in six midsize markets with high levels of provider concentration—Asheville, N.C.; Colorado Springs, Colo.; Detroit; Indianapolis; Northern Virginia; and Syracuse, N.Y. They found that following mergers, hospital systems used their larger size to seek higher reimbursement, including through "all-or-none" contracting. Even smaller hospitals leveraged their position as alternatives to win higher rates.
But payers generally have been unwilling to use their most powerful weapons to push back against provider demands for higher rates, the study found. Employers have refused to back insurers' moves to exclude high-priced providers from their plan networks, roll out narrow networks, or use tiered benefit designs. They fear backlash from their employees or unfavorable news coverage.
In some cases, health systems have made it difficult or impossible for plans to exclude them because they have geographic or clinical service monopolies in parts of the market.
Plus, insurers serving as third-party administrators for self-insured employers may lack the financial incentive to drive down prices because they typically receive a percentage of total spending as their administrative fee.
There also was limited use of value-based or financial risk-sharing contracts, particularly arrangements in which providers accept downside risk for not meeting cost and quality targets.
Instead, employers have largely relied on shifting costs to employees through higher deductibles and cost-sharing as a way to control their health benefit spending. But the authors found that strategy may be tapped out as employees can no longer afford the deductibles.
"Until employers are willing to push harder on providers or make unpopular benefit design decisions, everyone is going to continue to stew in this and (cost growth) will become unsustainable, if it isn't already," Keith said.
Since the research was completed, however, there has been progress in at least one of the markets studied. In Indianapolis, Anthem Blue Cross and Blue Shield, under pressure from employers, has contracted with two health systems to offer narrow-network and tiered health plans starting in January.
In the past year, "employers are getting beyond their concern about limiting employee choice," said Gloria Sachdev, CEO of the Employers' Forum of Indiana. "These risk-based contracts with providers are a step in the right direction. I don't know if the cost savings will be 5% or 25%. That remains to be seen."
In addition, Sachdev's employer group intends to press state lawmakers in January to increase provider price transparency. It will lobby for legislation to bar gag clauses in contracts between providers and insurers that prevent employers from seeing provider rates. In addition, the group will seek to prohibit all-or-none contracts as well as contract clauses that bar network tiering.
"We have to level the playing field for fair-market solutions," Sachdev said. "But contract language alone won't lower prices."
The report's authors said anti-trust enforcement has had limited effectiveness in countering the inflationary impact of provider consolidation. With 90% of the markets in the U.S. already highly consolidated, the prospect of greater anti-trust enforcement is "too little, too late," they wrote.