Consolidation will continue to drive the cost of healthcare up and reduce quality unless lawmakers and regulators push forward with policy reforms and regulatory intervention aimed at increasing competition, according to a new paper.
As providers increasingly look to consolidate in order to lower operating costs and create economies of scale, the Center for Health Policy at Brookings and Carnegie Mellon Univerity’s Heinz College on Thursday said the trend has led to a dearth in healthcare competition. That’s a key reason why the healthcare industry sees rising prices, price variation and uneven quality of care, according to the groups’ white paper.
The authors urge policymakers and enforcement agencies to create a “new competition policy” that would increase scrutiny on mergers, restrict anticompetitive practices, remove barriers to enter healthcare markets and help independent physicians be financially viable. Providing cost and quality data to consumers, requring providers to accurately idenitfy in-network providers and scrutinizing merger proposals are among the proposed solutions that could restore a functioning free market.
There has been a significant number of consolidation in hospital, physician and insurance markets over the past 15 years and that trend is expected to continue, according to the paper’s authors.
This consolidation has led to higher healthcare costs across the board, according to Glenn Melnick, an economist at University of Southern California’s Schaeffer Center for Health Policy & Economics, who analyzed Blue Shield of California payments. The average price for hospital admissions in California increased 76% from 2004 to 2013, from $9,193 to $15,642. The jump was even more significant for the state’s biggest hospital chains, where average admissions increased from $9,193 to $19,606, or 113%.
“As large corporations gobble up facility after facility, it appears that caring at a human level is being lost,” said Martine Brousse, a patient advocate in Santa Monica who negotiates fee reductions with providers. Providers are less willing to make a deal as they grow, she said.
In order to enhance competition within markets, the researchers urged the CMS to reform Medicare policies that encourage consolidation, including making payments site-neutral and reforming the 340b program that requires drug manufacturers to provide outpatient drugs at significantly reduced prices. The researchers also called for simplifying administrative and regulatory requirements, supporting risk contracts for independent provider networks and providing transparency on quality and cost to providers and consumers.
The states have work to do as well, the experts said. States should eliminate certificate-of-need regulations, dismantle willing provider laws and require insurers to clearly identify all in-network providers to consumers in order to reduce barriers of entry into the market, the researchers said. State licensing boards should seek to facilitate practices, such as telehealth, that may promote competition and innovation. The researchers also advocated for provider licensure reciprocity across states and adopting policies promoting entry into Medicare Advantage markets.
While providers claim mergers and acquisitions will help them become more efficient and lower administrative costs, critics worry that less competition translates to less affordable care, limited access and reduced quality.
The lack of competition in healthcare markets is the key reason that “prices are high and vary in seemingly incoherent ways, yet quality of care is uneven, and the system lacks the innovation and dynamism that characterizes much of the rest of the economy,” the white paper said.
Without effective competition, hospitals can secure higher price concessions in their negotiations with insurers, the Brookings and Carnegie Mellon experts said. Hospitals with less than four local competitors are estimated to have prices nearly 16% higher on average – a difference of nearly $2,000 per admission, researchers found.
As for quality, less competition can lead to worse patient outcomes, especially when prices are set by regulators, as in the Medicare program, according to the paper. Medicare beneficiaries who experienced a heart attack had a 1.46% higher chance of dying within one year of treatment if they were treated by a hospital that faced few potential competitors, research shows.
“Growing consolidation among hospitals is one of the major root causes of price increases,” said Suzanne Delbanco, the executive director of Catalyst for Payment Reform.
When it comes to preventing anticompetitive practices, federal and state agencies should apply increased scrutiny to horizontal mergers as well as vertical mergers, particularly hospital acquisitions of physician practices, the healthcare experts contend. States should discontinue the use of certificates of public advantage to shield anticompetitive collaborations, enable the FTC to enforce the antitrust laws in the health insurance industry as well as for nonprofit providers, and state insurance commissioners should review insurers’ contracts with providers.
“The more we expose charges and ultimate prices along with quality information, the more pressure there will be for prices to reflect value,” Delbanco said.