Healthcare industry consolidation is not just driving up healthcare costs but also hurting workers in other sectors of the economy, researchers say.
“Provider consolidation is one of the leading drivers of health spending and health insurance premium growth right now,” Zack Cooper, associate professor of public health and economics at Yale University, told Senate Finance Committee members at a hearing Thursday.
The rising premiums trigger economic consequences well beyond the healthcare system, Cooper told the lawmakers, because so many people in the U.S. rely on employer-sponsored health insurance. As the cost of insurance goes up, he said, employers essentially have three choices: Lower workers’ wages, slow down hiring, or lay off workers. “We see evidence of all three happening,” he said.
What’s more, the tax exclusion for employer-sponsored health insurance means that the burden of the rising health spending is falling disproportionately on non-college-educated workers, Cooper said. Research suggests that rising health spending on the privately insured is leading to economic inequality in the U.S., he said, and the scale of those effects is comparable to those of outsourcing, trade and automation.
Over the last two decades, there have been at least 1,000 mergers among the roughly 5,000 U.S. hospitals, Cooper said. Hospitals and corporate entities, including payers and private equity, now own over half of physician practices and employ nearly three-fourths of physicians, Shawn Martin, CEO of the American Academy of Family Physicians, told the committee.
A “new wave of mergers” will continue in the sector as health systems adapt to thin or even negative operating margins, healthcare management consulting firm Kaufman Hall said in a recent report. Before the COVID-19 pandemic, smaller independent hospitals and health systems were already looking for partnerships to ensure their viability amid high fixed costs and downward pressure on payments, and “these pressures have only intensified over the past three years,” the report said.
Merging with a hospital system can help some hospitals ease financial burdens “and improve patient care by providing scale to help reduce costs” associated with medical services, supplies and prescription drugs, the American Hospital Association said in a statement to the Senate Finance Committee. “Perhaps most important, mergers can allow struggling hospitals to remain open.”
Concentration among pharmacy benefit managers, which manage prescription-drug benefits on behalf of insurers, large employers, and other payers, has drawn particular scrutiny in Washington in recent months. Senate Finance Committee chairman Sen. Ron Wyden, Democrat of Oregon, signaled progress on potential PBM reforms at the hearing Thursday. “We are going to have more to say about it in the coming weeks, and it will be bipartisan,” he said. PBMs, he said, “are in a lot of ways exhibit A for the consequences of consolidation in the healthcare system.”
Lawmakers raised concerns about insurance companies buying doctors’ practices and seeking to drive up profits by generating more volume or adding patient diagnosis codes that can lead to higher reimbursements. Sen. Elizabeth Warren, Democrat of Massachusetts, singled out CVS Health’s
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acquisition earlier this year of Signify Health, a technology and services company that is focused in part on bringing clinicians into patients’ homes to identify chronic conditions. CVS “even paid $8 billion for a chart-review company to send people into patients’ homes in search of adding more codes to their files,” Warren said, adding that “this business model is wildly profitable for the insurance companies.”
Asked for comment on Warren’s remarks, a CVS spokesperson referred to the company’s announcement of the acquisition, which said that Signify clinicians on average spend 2.5 times longer with members during home visits than an average primary-care visit. “Together we will work to improve care delivery capabilities, lower costs, improve levels of engagement and enable broad access to high-quality care, especially for Medicare Advantage customers,” the statement said.
Medicare payment practices may be inadvertently encouraging consolidation, some researchers said. The federal program in some cases pays more for a service that’s delivered in a hospital outpatient department than it pays for the exact same service delivered in another setting. “So what does that do? It just creates incentives for the physician to merge and the hospital to buy them,” Cooper said. “That doesn’t need to be the case.” Momentum has been building on Capitol Hill to implement more “site-neutral” payment policies–in other words, paying the same amount for certain services regardless of where they’re delivered.
The American Hospital Association said in its statement that site-neutral payments “threaten access to care” and fail to take into account fundamental differences between hospital outpatient departments and other settings, such as hospitals’ investments to maintain standby capacity for public health emergencies and to deliver round-the-clock emergency care to all patients.
Efforts to spur competition and rein in costs through better price disclosure have in some ways fallen short, experts told the committee. Fewer than one in 10 Americans are even aware that new hospital price transparency data exists, said Caroline Pearson, executive director at the Peterson Center on Healthcare. Research by the Peterson Center and KFF, a health policy nonprofit, found that hospital compliance with the reporting requirements is lagging and there is significant variation in hospital prices.
Hospitals and health systems are working to comply with state and federal price transparency policies, “which are varied and sometimes conflicting,” the American Hospital Association said in its statement.
Algorithms that can be used to deny patient care also deserve more examination, researchers and lawmakers said. Wyden cited potential abuse as algorithms are generating questionable claim denials, saying, “Trends like these are going to require vigorous oversight.” Delays and denials of care in Medicare Advantage plans and insurers’ reliance on algorithms to make decisions on patient care were the subject of a Senate Permanent Subcommittee on Investigations hearing last month.
Although more oversight is needed, “it’s a space that is moving too fast right now on the technological and business side for us to have the policy and regulation in place to begin to deal with it,” Dr. Karen Joynt Maddox, associate professor of medicine at Washington University, said at the hearing.
