Expert Seeks Payment Reform in Light of Healthcare Mergers

May 12, 2016 - Payment reform might be one way to tackle the issue of rising medical costs that have been coming as a result of healthcare mergers. It’s possible for this issue to be resolved if the federal government pursued policies to foster competition in healthcare markets, according to Paul Ginsburg, director of public policy at USC Schaeffer Center for Health Policy and Economics. Competition in insurance markets as well as among providers needs to be fostered, he argued.

“There is a need for both public and private sector initiatives in addition to anti-trust enforcement to foster greater competition on price and quality,” Ginsburg said.

In a testimony to before the California Legislature, Senate Committee on Health Informational Hearing in March, Ginsburg also discussed the healthcare’s market consolidations impacts on costs, quality and access.

“I see payment reform as having major potential over time to reduce costs and increase quality,” Ginsburg said. “So my advice is to proceed with payment reform but also take steps to foster competition.”

One way competition can be fostered in the industry is through public exchanges for the insurance market, he explained. Exchanges have the ability to reduce entry barriers by lowering the fixed costs of obtaining an insurer’s product in front of potential customers, he explained.

“Exchanges make it easier for consumers to make informed choices across plans,” he said. As a result, insurance markets become more competitive. More effective network strategies could support a more competitive environment in the industry. For network strategies, insurers act as a purchasing agent for enrollees. They have the “potential to shift volume from high-priced providers to low-priced providers,” he said. The higher proportion of services coming from lower-priced providers could lead to reduced costs.

“If a large enough portion of patients are enrolled in plans with these incentives, providers will likely increase the priority given to cost containment,” Ginsburg said.

In networks, insurers are able to use broader and more sophisticated measures of price and quality. Network strategies also “create more opportunities for integrated care,” he explained.

Price and quality transparence can also be used as tools that foster completion, he stated. Although insurers now have web tools designed to make it easier for patients to compare prices, these tools are not getting used enough.

Network strategies are a potential tool that can be used to support completion in consolidated markets. Ginsburg discussed two network strategies in his testimony: the limited network and the tiered network. In the limited network, there are fewer providers than has “been the norm for private insurance,” he said. The tiered network, on the other hand, is broad but a “subset of providers are included in a preferred tier.” Also, patients will most likely pay less in cost sharing when they use the preferred providers. Overall, limited networks can be a powerful tool to achieve lower prices because patient incentives are stronger, Ginsburg argued. The potential for tiered networks depends on regulatory steps that support it.

However, narrow networks are still a competitive tool to address high and rising medical prices, he said. Also, networks in general need to have more transparency because consumers need more accurate data regarding providers so they can make informed decisions. Network adequacy should be regulated “wisely,” Ginsburg noted.

Ginsburg also argued that the trend of price increases happening as a result of consolidations of healthcare markets is likely to continue despite anti-trust enforcement. “States should address restrictions on anti-competitive practices such as anti-tiering restrictions, all-or-none contracting restrictions, and most favored nation clauses,” he stated.

According to a previous Health Affairs study that Ginsburg authored, federal and state governments have opportunities to limit consolidation’s impact on prices by developing antitrust policies that better address current market environments and “by fostering the development of physician organizations that can increase competition and contract with payers under shared-savings approaches.”

In his testimony, Ginsburg also made a case for fostering independent medical practices. He noted that Medicare recently took steps to ease requirements for medical practices to contract as accountable care organizations, and this helps independent practices. Also, private insurers have provided support to some practices by helping them incorporating electronic medical records. If independent practices are made more attractive relative to hospital employment, competition in provider markets will most likely increase, he said.

According to the Alliance for Health Reform, there were 1,299 mergers and acquisitions valued at $307 billion in the healthcare sector in 2014. From 2013 to 2014, healthcare mergers and acquisitions rose by 26 percent.

“Doctors have been increasingly interested in becoming salaried employees of hospitals because it provides payment security at a time of uncertain reimbursement rates, and a better work-life balance,” Alliance for Health Reform said. Additionally, hospitals can help doctors offset high costs of adopting an electronic health records system.

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