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Study Shows Payment to Hospitals, Providers Vary Widely

Source: WSJ

Posted on 18 Nov 2010

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New research by the nonprofit Washington-based Center for Studying Health System Change, funded by an employer-backed group called Catalyst for Payment Reform, found the rates that hospitals charge private insurers varied widely, both between different cities and also often within the same market. The study attributed high prices largely to hospital market concentration, though it noted that some hospitals win generous rates largely because prestige makes them “must-have” providers.

The study zeroed in on eight different geographic areas and drew on data from Aetna, WellPoint’s Anthem, Cigna and UnitedHealth Group. It examined rates as a percentage of Medicare reimbursements. That strategy should theoretically cancel out a lot of the variation between locations due strictly to factors like local wage costs, which are supposed to be figured into the federal rates.

For inpatient services,  San Francisco was the priciest area, with rates averaging 210% of Medicare, followed closely by Milwaukee, at an average of 205%. For outpatient, San Francisco was again tops, while second place went to Indianapolis. The analysis said the City by the Bay has “a high degree of hospital concentration and must-have hospitals,” along with low Medicaid rates — which some believe can lead to providers shifting costs to private insurers. Milwaukee hospitals are also somewhat concentrated, the report said, while Indianapolis has a number of distinct sub-markets that are dominated by particular hospital systems.

The study found doctor rates varied much less. But, hitting on the increasing tendency of hospitals to directly employ doctors, it said the relatively pricey physician services in Milwaukee are likely tied to the fact that most doctors there work for hospitals. That “allows the hospital to use its clout as a hospital to get high rates for the physicians it employs, and that’s something we’ll see more of in the future,” Paul Ginsburg, the author of the study and the president of CSHSC, tells the Health Blog.

Insurers have said that efforts to knit together hospitals and doctors into the newfangled and so far vaguely-defined “accountable care organizations” may risk driving up rates.

The American Hospital Association isn’t accepting ther study, calling its analysis “too deeply flawed to be a usable policy tool.” Among the group’s criticisms: each insurer used different methods to generate data, and the study really couldn’t back the claim that various types of hospitals all wield market clout to drive up rates.

It’s also true that the study didn’t look at the question of how the market power of insurers can affect rates, either those health plans pay to providers or what employers and consumers spend on coverage. That issue was highlighted recently when the Justice Department sued Blue Cross Blue Shield of Michigan on antitrust grounds, alleging that it struck anticompetitive agreements with hospitals, thus likely raising health costs.