Hospitals Using New Strategies to Lock in High Prices

Hospitals are using sophisticated strategies to increase their ability to demand high prices from insurers, a new study in Health Affairs suggests.

Hospitals have expanded their strategies beyond simple consolidation in a given market, Robert Berenson of the Urban Institute and Paul Ginsburg of the Center for Studying Health System Change found. They interviewed hospital and insurance company executives in 12 markets around the country.

Hospitals are now focusing on purchasing hospitals and services considered “must have” or buying hospitals spread throughout a state or region to improve their negotiating clout. Such mergers do not always fall under the purview of antitrust law.

The report also documents an acknowledged and related trend—the acquisition of physician practices by hospitals. According to the study’s authors, hospital executives saw the employment of doctors as a further strategy to lock in favorable contract terms.

Hospitals with increased market clout, either because of desired services or extensive market share, are generally able to use their leverage to demand higher prices from private insurers.

Health care reform may not do much to ameliorate these trends, Berenson and Ginsburg conclude. Their interviews revealed that few hospitals or insurers think that provisions that police insurance rate increases would affect the growing clout of some hospital groups. Hospitals told them their concerns about treating more low-paying Medicaid patients might actually lead to more aggressive negotiations with insurers.

Berenson and Ginsburg recommend changes in insurance-product design or government-price regulation, which has worked to control hospital price growth in Maryland.

“Our findings indicate that a range of other market and regulatory approaches also need to be examined in any attempt to address the consequences of growing provider leverage,” they wrote.

The American Hospital Association disputes the paper's conclusions. Increased consolidation and the acquisition of physician practices are necessary to deliver better and lower-cost care, it argues. It points to recent reports of slower-than-usual revenue growth as evidence that consolidation is not making care more expensive.

"We recognize no underlying validity" to the study, said Melinda Hatton, the AHA's general counsel.

Get the latest news and analysis delivered to your inbox. Sign up for National Journal's morning alert, Wake-Up Call, and afternoon newsletter, The Edge. Subscribe here.