Hospital M&A Driving Variation in Healthcare Costs by Site
Two AHIP leaders found that healthcare cost variations are significantly different based on site of care because of an increase in hospital mergers and acquisitions.
By - As patients are encouraged to shop around for the best price for medical services, many may be shocked to discover how healthcare costs can differ depending on where a patient receives care. These price differences can cause some consumers to seek treatment at different facilities and drive down consumer revenue.
In a recent Health Affairs blog, two senior leaders at America’s Health Insurance Plans (AHIP) addressed how hospital mergers and acquisitions have led to significant healthcare price variations for the same service based on the site of care.
Price differences are especially common between hospital outpatient departments and physician offices, according to Aparna Higgins, AHIP’s Senior Vice President of Private Market Innovation and Director of the Center for Policy and Researcher, and German Veselovskiy, AHIP’s Director of Research at the Center for Policy and Research. For example, a hospital outpatient department is reimbursed 2.4 times more than a physician at an independent practice for a level II echocardiogram.
Even individuals with employer-sponsored health insurance have experienced drastic healthcare price variations. For seven common services, such as office visits, chest X-rays, and MRIs, prices for the same service were 21 percent to 258 percent higher when performed in a hospital outpatient department opposed to a physician’s office. In 2013, the same services represented $1.9 billion in additional healthcare spending.
Higgins and Veselovskiy explained that hospital mergers and acquisitions may be the primary drivers behind increased healthcare costs and price variations.
Vertical integration, which involves hospitals acquiring physician practices, has caused more patients to receive medical services at hospital outpatient departments at higher rates.
“The number of vertically consolidated physicians nearly doubled between 2007 and 2013, and the proportion of routine office visits performed in HOPD was higher for Medicare beneficiaries in counties with higher levels of vertical consolidation — despite those beneficiaries not being appreciably sicker,” added Higgins and Veselovskiy. “Such acquisitions have shown to increase physician prices by as much as 14 percent.”
Hospital mergers, or horizontal integration, have also resulted in wider healthcare price differences based on care site. By 2010, the hospital market went from an average of five independent firms in the mid-1980s to just three.
“While consolidated health systems may gain the ability to better coordinate care for the patients, they are certainly gaining greater market power,” explained Higgins and Veselovskiy. “This makes it difficult for insurers to bargain successfully with one of only a few health systems to achieve lower prices for their enrollees.”
Additionally, some medical services have resulted in higher price rates for certain care facilities. Researchers have found that some healthcare price variations could be reduced or equalized for specific outpatient services, explained the blog post.
“The Medicare Payment Advisory Commission (MedPAC) identified 66 outpatient services for which the payment rates can be either equalized between free-standing physician offices and hospital outpatient departments or the disparities in payments substantially reduced,” wrote Higgins and Veselovskiy.
By enforcing the changes for the 66 services, Higgins and Veselovskiy reported that Medicare and its beneficiaries could significantly reduce healthcare costs. For example, Medicare beneficiaries spent $4.05 million more in out-of-pocket coinsurance costs for chemotherapy services between 2009 and 2012 because the services were not performed in a physician’s office.
In addition to specific price changes, the blog post called for several policy and market-based solutions to help decrease healthcare costs.
The Bipartisan Budget Act of 2015 has helped to alleviate healthcare price variations by changing Medicare fee-for service payments for new off-campus hospital outpatient departments. Starting in 2017, non-emergency services rendered at these sites would be reimbursed under the Ambulatory Surgery Center of Physician Fee Schedule rules.
However, existing off-campus hospital outpatient sites or any new outpatient facilities within 250 yards of the main buildings will not have to follow the new regulation. The blog post reported that expanding the regulation to address these care sites could reduce Medicare spending and beneficiary cost sharing by $1.1 billion in one year.
Health insurers should also improve healthcare price transparency tools for their members and increase member engagement, noted Higgins and Veselovskiy. While three quarters of health insurers report providing price and quality information to their members, research has shown that only two percent use these resources.
“Evidence suggests that using price transparency tools results in savings,” stated Higgins and Veselovskiy. “Health plan members who used a price transparency platform before receiving care paid 14 percent less for lab tests and 13 percent less for advanced imaging compared to people who did not use the price transparency tool provided by their insurer.”
The blog post also noted that the federal government should continue to monitor proposed hospital mergers and acquisitions to ensure competition, which could result in lower healthcare prices as well as better care quality.
While reducing or equalizing healthcare price variations would help Medicare and patients reduce costs, it may also be key for helping some care facilities keep patients and maintain consumer revenue.
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