Breaking Up the Care Cartels

Doctors and hospitals are joining forces at breakneck speed, and conventional wisdom has been that provider consolidation will streamline services, reduce waste and duplication, and ultimately bring down costs. But a study published last year in the Journal of American Medical Association shows this just isn’t the case. In fact, these new alliances consolidate just one thing – the power to negotiate high prices from insurers.


As large health systems gobble up independent physician practices, they are reducing competition in a given market and using that leverage to demand higher reimbursement rates from health insurers. It’s a case of Care Cartels, plain and simple. 

Here are three ways mergers between hospitals and doctors’ groups can drive higher prices for consumers:


1.    They can export high prices to the suburbs

Health systems that acquire or partner with outlying physician groups will often change the signage to reflect the new relationship. It’s a win-win. The doctors’ group gets the prestige of the influential hospital, and the hospital gets access to the doctors’ patient volume. Often the doctors will be included in joint contracting with insurers and will be able to command the higher prices of the hospital.


2.    They can redirect care to more expensive settings

Health systems looking to increase their girth often say they will be able to direct more outpatient care to affiliated doctors’ offices, where costs are lower. But sometimes the opposite happens, where routine procedures are performed in an academic medical center instead of a lower-cost community hospital nearby. That’s because the doctors have agreed to refer their patients to the expensive downtown hospital.


3.    They can tack on facilities charges

Some physician practices, particularly specialist groups, are re-classified as “outpatient clinics” of the hospital or health system. So the next time a patient has a mole removed by a dermatologist or goes in for a visit with a pain doctor, they may see a hospital facility charge on their bill, in addition to the physician charge – even though the patient never set foot in the hospital. 


This kind of price fixing among a small group of economic players would normally face anti-trust litigation. Even the powerful de Beers diamond cartel fell in the 1990s – its uncut diamond market share has plummeted from a high of 90 percent to 40 percent in recent years. 


But while state regulators and the U.S. Justice Department have investigated the anti-competitive behavior of certain dominant health systems, there have been few consequences for hospitals and insurers who collude to increase health care spending in this country. 


Cartels, historically, don’t last that long. Just five to eight years, according to this study by a University of Pennsylvania Wharton Business School professor. One member of the cartel typically figures out it can make more money by offering slightly lower prices than the other members, and stops following the rules of the cartel.


So why have Care Cartels stayed intact, sometimes for decades? 


There is a single culprit. The broad-panel provider network.


Here’s why: large health systems have insurers over a barrel because they can threaten to walk, departing these large provider networks, and supposedly reducing choice for health plan members. 


Insurers could say, “Enough. We don’t want the largest number of providers, at any cost, regardless of quality.” But insurers have failed to do that, and have instead passed on those higher prices to employers and consumers.


It’s time to fight fire with fire. Large employers representing tens of thousands of covered lives have a key role to play in breaking up these Care Cartels, and the first step is to reject broad panel networks.


Instead, employers need to embrace high-performance provider networks that include only the best doctors and hospitals who are committed to providing health care value. If providers demand too-high prices for sub-standard care, employers should be the ones to walk, taking their patient volume and their checkbooks with them.


If you are ready to break up these Care Cartels and start calling the shots in health cost negotiations, you need Imagine Health.


Rick AbbottComment