the second opinion

The Big Boys: hospitals and their pricing muscles

Three newspaper investigations show that consolidation leads to higher costs for patients
January 21, 2013

This is the first of an occasional series of posts called “The Big Boys,” which will examine how the media are reporting on the healthcare system’s biggest players and how their business practices affect consumers–before and after they become patients. At the end of each post we suggest a story idea for further reporting.

As hospital systems across the country have grown bigger by gobbling up other hospitals and, more recently, physician practices, the media have been on the case. Several outlets have examined the healthcare ramifications of such consolidation, and taken a hard look at whether the economic trends are good for their communities. The Tampa Bay Times, The Charlotte Observer, the Raleigh News & Observer, and the Idaho Statesman all deserve a shout-out for their recent work.

These papers build on a piece we praised back in February by Margot Sanger-Katz in the National Journal, which explored hospital consolidation in Evanston, IL and in Boston. She concluded the industry is rapidly consolidating, and “the 2010 health care reform law is likely to make it much, much worse”–with consumers footing the bill. The newspapers reached the same conclusion and raised a larger question: Are these systems getting too big?

In Tampa

What a story the area’s hospital merger and acquisition activity has turned out to be! A few months ago, BayCare Hospital System declared war on insurance giant UnitedHealthcare, and has essentially held as hostages some 30,000 seniors who have bought United’s Medicare Advantage plans, in a contract dispute ongoing since last fall. The BayCare Health System, which dominates one-third of the Tampa region’s healthcare market and is still growing, took out a full-page ad in the Times, telling United’s policyholders they could not use any BayCare facilities except emergency rooms after November 26, while the insurer said it would honor claims through the end of last year.

Health editor Charlotte Sutton said some plans allow seniors to use BayCare hospitals, but they must pay out-of-network rates; she noted that some seniors have switched insurance carriers as a result of the dispute. BayCare said United owed it $11 million in unpaid claims, some going back four years, and argues that it needs higher reimbursement rates. BayCare had been seeking a 23 percent rate increase on policies United sold to employers, which would be paid by both employers and employees.

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A United spokesperson said the increase was “unacceptable.” Paul Ginsburg, president of the Washington think tank Center for Studying Health System Change, told the Times: “I think that a lot of mergers are pursued to increase leverage with health plans–and no one is going to say that in public.” In Tampa the hospital’s actions said it all.

Last Friday night, the hospital system and the insurer finally reached a settlement. Neither side would disclose the terms of the agreement. In a phone interview with the paper, the hospital CEO, Steve Mason, refused to comment on the rate increase or any other financial deals. He cited confidentiality and competitive marketplace pressures.

In Charlotte and Raleigh

Before Christmas, the Charlotte Observer and the Raleigh News & Observer published, the results of a joint investigation: patients in North Carolina are likely to pay more for all kinds of medical services if the doc is an employee of a hospital.

Using Medicare and insurance claims, reporters Ames Alexander, Karen Garloch, and David Raynor exposed some unsavory consequences that have resulted from the actions of Charlotte’s two hospital systems, Novant Health and Carolinas HealthCare System, which are buying doctors’ shops and sometimes charging double what the docs would have charged had they not teamed up with the hospitals. Why the increase?

Medicare allows hospitals to collect more from patients than doctors can collect. Hospital officials claim they have expenses that physicians don’t have, must comply with pesky regulations, and have to treat everyone even if they cannot pay. Add to that, they have more muscle to squeeze insurers–as the Tampa paper has shown. Patients find themselves paying a lot more for care. One North Carolina woman who had been paying a $60 copayment for periodic echocardiograms ended up owing $952 for the usual test performed by the usual technician.

The reporters from the Observer asked Carolinas HealthCare System about that and other questions, which it didn’t answer. Instead the hospital touted its commitment to quality saying, “We work hard to achieve greater value and better care for our patients if these higher charges do occur. The paper printed the response.

In Boise

Reporter Audrey Dutton offered readers a lengthy description of how two hospitals in the Idaho capital–St. Luke’s Health System and Saint Alphonsus Health System–have become giant healthcare machines competing for market share and grabbing more doctors’ practices. In a second piece, she examined the fallout for patients.

How how are prices rising? An analysis of data from Blue Cross of Idaho for common medical imaging procedures revealed the average hospital in the Blue Cross network was charging $110.81 more for a chest X-ray and about $300 more for an MRI than what the service would cost at a free standing clinic. One doctor, who had been in a practice that was sold to St. Luke’s, told Dutton: “Overnight our prices doubled, absolutely doubled”

Insurers said they didn’t actually pay the higher charges. One said their goal was “to pay the same before and after the acquisition.” That leaves the balance up to the patients to pay. The ones with no insurance, who go to out-of-network doctors, or who have coverage that doesn’t count outpatient hospital procedures (which some of these services are) toward the ever-larger deductibles–they have to pay.

What the three newspapers have discovered runs contrary to the goals of the Affordable Care Act, whose very name and legislative premise was to make healthcare cheaper for Americans. If market forces are running contrary to the goals of the law and causing healthcare to become more expensive, that’s one heck of a continuing news story.

Our suggestion: Hospitals claim higher prices are justified because they have to provide costly care for the uninsured. Is the claim justified? Hospitals do collect from uninsured, or insured patients for that matter, often using aggressive techniques. As the Observer reported, they’ve sued thousands of needy patients, often putting liens on their homes and damaging their credit. Do amounts spent on charity and uncompensated care justify the higher prices for services given by hospital-employed doctors?

Related stories:
A Laurel to The Record

The new medical credit racket

What We’re Learning About Hospitals Part 1

Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for CJR's Covering the Health Care Fight. She also blogs for Health News Review and the Center for Health Journalism. Follow her on Twitter @Trudy_Lieberman.