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The Hidden Costs of Healthcare Consolidation

April 2019

The healthcare industry has experienced a prolonged period of consolidation. National, regional and local health systems have merged. Independent doctors have joined forces with large physician groups. Those physician groups have been gobbled up by local hospital systems.

Conventional wisdom would suggest that all of this consolidation would improve the economies of scale, resulting in streamlined services, reduced waste and lower costs. But that’s not the case. In fact, according to Dr. Barbara McAneny, former president of the American Medical Association, the opposite is actually happening. “Instead, choices go down, costs go up and staff input on hospital operations is diminished — adding to physician frustrations,” according to McAneny.

Conventional wisdom would suggest that healthcare consolidation would streamline services, reduce waste and lower costs. But that’s not the case.

I’ve identified three reasons why healthcare consolidation is driving up costs for consumers and provided ways to combat the rising costs of care. First, let’s look at the root causes.

1. Physicians employed by health systems can now demand higher reimbursement levels

Many health systems take an all-or-none negotiating position when negotiating contracts with payers. The more physicians (and greater number of services) they offer under their Integrated Delivery System umbrella translates into greater negotiating leverage for them resulting in their ability to command higher reimbursement levels.

2. Redirecting care to more expensive settings

Physician groups that are affiliated with health systems are “encouraged” to refer treatment to their affiliated hospitals. Sometimes that could mean referring a routine procedure such as a lab test or imaging test to an academic medical center instead of a much lower-cost outpatient facility nearby, resulting in unnecessarily inflated costs.

3. Tacking on facilities charges

Some physician practices owned by the hospitals, particularly specialist groups, can be reclassified as “outpatient clinics” of the hospital. This can result in an additional hospital facility charges included in your bill in addition to the physician charge — even though you never set foot in the hospital.

Combatting the rising costs of care consolidation

While it can be frustrating to realize the challenges of our ever-changing healthcare reality, there are some things you can do to combat these hidden costs. As an employer, you must help your employees take control of costs before they undergo a medical procedure. That means asking questions, like where will the procedure be performed and is there a lower-cost place of service, e.g., reference lab, outpatient care center, free-standing imaging center, physician office? Secondly, you must remind your employees to scrutinize their bill. If they see a hospital charge for a procedure performed in an outpatient setting, bring it up to the provider and ask for the fee to be removed. Lastly, you can reject broad panel PPO networks and embrace high-performance solutions that include providers who are committed to delivering healthcare value. By addressing costs up front, employers and employees alike will be better equipped to take control of the situation and ultimately lower costs. It’s all part of Imagine Health’s plan to give control back to employers and employees.

Imagine Health

about the author

A different kind of health plan, Imagine Health lowers spend today, controls costs over the long term and gives control to the people who pay for healthcare: employers and their employees. Ready to challenge the status quo and take back control of healthcare? Contact Imagine Health to get started.


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