Unintended Consequence Number 38

The hospital big boys get bigger, too

Over at Kaiser Health News, staff writer Julie Appleby produced an illuminating story about ongoing consolidation among hospitals and physician groups, an unintended consequence of the country’s last attempt to contain medical costs—the push to managed care in the 1990s. But Appleby reports that the medical mergers taking place, particularly in the Mid-Atlantic region, are part of a trend resulting in fewer independent hospitals and doctors that “will only grow because of the health reform law.”

It was good to see Appleby’s story, because the media pretty much gave hospitals a bye during the reform debate, instead making insurance companies the saga’s primary villains. Quietly, though, it seems the hospitals were up to the same thing as the insurers—organizing themselves into larger and larger groups with tons of market power to keep insurance premiums in the stratosphere. Appleby quotes Martin Gaynor, an economist at Carnegie Mellon (a new voice in the health reportage, which is always good to see):

All the evidence very clearly shows consolidation leads to higher prices. Guess who pays for those higher prices? One might think insurers would eat them. No, they don’t. It goes into higher premiums. When premiums go up, employers just pass them right on to their workers, either in the form of lower wages or reduced benefits.

Appleby tells us that health reform will give hospitals even more reason to swallow up their rivals, like United Health Group. She shows how that is taking place in the Washington, D.C. area, where mighty Johns Hopkins Hospital snagged a hospital in suburban Maryland and is now waiting for approval to add Washington’s Sibley Memorial to the family. If that happens, there will be only two independent hospitals left in the District. Washington’s other hospitals are owned by MedStar Health in Columbia, Maryland, or by other big systems.

Appleby reported that the consolidation bug has infected the provider marketplace in other places like Washington state, where insurers are “playing hardball,” says Chrissy Yamada, who heads the finance department at Evergreen Hospital Medical Center. The hospital remains independent for now. Yamada says the insurers are demanding rate decreases and backing their demands with threats. Earlier this summer in New York City, Continuum Health Partners Care, a big system controlling such hospitals as Beth Israel and New York Eye & and Ear Infirmary, battled Aetna over prices. Continuum asked for a forty percent increase in payments; Aetna said no, and told its policyholders that they could no longer go to these facilities. Later, Aetna apparently backed down, and the combatants reached an agreement.

What does this mean for the premiums charged by Aetna et al, and for price competition? It seems to me it’s a case of the irresistible force meeting the unmovable object. Affordable health care? For whom?

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.