Understanding the Hospital Consolidation Numbers: The Centrality of Data Quality

Is hospital consolidation creating new efficiencies or does it give health care providers clout over health care insurers?  A well-publicized study published in Health Affairs last year by Robert Berenson, Paul Ginsburg, et. al said the latter:  hospital consolidation has resulted in “growing provider market clout.”

The Berenson study’s key conclusion is that growing hospital clout has resulted in insurers not aggressively containing their claims payments, a view that will stun every patient who has had a health insurance company deny coverage for a procedure, prescription or preferred health care provider.

Because the Berenson study’s finding are counterintuitive to consumer experience, and because they have been widely discussed in publications ranging from Forbes to National Journal, the Center for Regulatory Effectiveness, a regulatory watchdog with extensive experience in analyzing federal health policies, undertook an analysis to see if the study complied with the Data Quality Act (DQA).

The DQA, administered by the White House Office of Management and Budget (OMB), sets standards for virtually all data disseminated by the agencies.  Under the DQA, agencies may not use or rely on data in federal work products (reports, regulations) which don’t comply OMB’s government-wide Data Quality standards. Thus, unless the Health Affairs study complies with federal Data Quality standards, it is useless to Executive Branch policy officials.

The primary data source cited by the Berenson study as the basis for their conclusions regarding trends in relative clout between hospitals and health insurers is a well-respected, longitudinal tracking study which included interviews with heath care leaders from insurance companies, hospitals, and academia.   The health care interviews, however, were only conducted in a single year following a change in longitudinal study’s methodology.

In short, the Berenson study did not use longitudinal data; it used data from a single set of observations that was mixed with other interviews conducted outside the longitudinal study.  Interviews at a single point in time with stakeholders representing various vested interests cannot be the basis of conclusions regarding trends in anything – the Berenson study design was not capable of detecting trends.

It is also important to note that CRE found the study’s methodology to be opaque; there was no indication of the process by the study’s conclusions were derived from their dataset.  Moreover, the study included no tables, charts or specific citations to the referenced longitudinal study nor any output/results from the analysis software that the authors state they used.

Even aside from the Berenson study’s lack of analytic transparency, its basic conclusion regarding relative clout between insurers and hospitals is undermined by the Medical Loss Ratio (MLR) data obtained by CRE from publicly available Congressional sources.

The MLR data indicates that most of the major insurers reporting the data enjoyed declining MLRs from 2000-2008, meaning that the insurers were paying out a decreasing share of their premiums in claims.  It was insurers keeping a greater share of consumer premium dollars that led to the MLR regulatory requirements in the Affordable Care Act.  The data showing that insurers overall have been keeping a greater share of consumer health care premiums is at stark odds with Berenson’s conclusions regarding declining insurer clout.

CRE’s analysis “A Signature Study on Hospital Consolidation Violates the Data Quality Act,” is a detailed analysis documenting the specific ways in which Berenson 2012 violate DQA requirements.  The CRE study is available for public comment on our Hospital Consolidation website, http://thecre.com/hcf/.

Bruce Levinson is the Senior Vice President for Regulatory Intervention at The Center for Regulatory Effectiveness (CRE).

9 replies »

  1. Mr. Carroll’s point regarding possible weaknesses in the use MLR data as a proxy for leverage is definitely worth additional study. Nonetheless, I think our basic criticisms of the Berenson-Ginsburg study are valid and reinforced by a recent article in USA Today, http://www.usatoday.com/story/money/business/2013/10/13/hospital-job-cuts/2947929/ which states that hospitals are “are starting to cut thousands of jobs amid falling insurance payments and inpatient visits.”

    Since insurance payments to hospitals is falling so sharply that there are widespread job losses, the Berenson-Ginsburg perspective that hospital clout over insurers is increasing remains quite perplexing.

  2. Mr. Carroll;

    One of OMB’s requirements for assessing whether the Data Quality Act’s Objectivity criteria is met “involves whether the information is presented within a proper context. Sometimes, in disseminating certain types of information to the public, other information must also be disseminated in order to ensure an accurate, clear, complete, and unbiased presentation.”

    Thus, CRE recognizes the importance of gaining insights from all perspectives, particularly those that are informed by years of relevant experience.

    To further discuss, please feel free to contact me at Levinson@TheCRE.com

  3. Mr. Levinson –

    I am not aware of formal studies on this issue.

    I recently retired after working as a securities analyst for a large corporate pension fund. Part of my responsibility included covering the publicly traded managed care insurers including UnitedHealth Group, Wellpoint, Aetna, Humana and Cigna among others.

    The people insured by these insurers include the following: Medicare Advantage members, employees of small and medium size businesses, and people who buy their health insurance in the individual insurance market. Between 50%-60% of members work for larger employers who self-insure and hire insurers to pay claims and provided other administrative services under ASO contracts. ASO stands for administrative services only for which insurers are paid a very modest sum per member per month (PMPM).

    When insurers price their full risk policies for the upcoming year, they have to forecast or estimate how much the cost of medical claims per member will increase over the prior year which they try to base on their extensive historical claims data. Until a couple of years ago, most insurers estimated that medical costs would rise about 7% plus or minus 50 basis points and priced their policies accordingly. Performance was better than that for the past several years but there were periods in the past when it was worse. Overall inflation rates are unpredictable. Utilization of services is unpredictable. The number of members with unusually large claims in any given year is unpredictable as well.

    Through better case management, disease management and other strategies, insurers made progress in reducing hospital inpatient bed days per 1,000 members in recent years. Discharge planning has improved which reduces readmission rates and hospitals are making progress in reducing infection rates. The recession caused some patients to postpone elective surgeries and other care. More people with high deductible insurance plans also reduced utilization of services.

    The bottom line is that medical costs paid by insurers are impacted by many factors and trends run in cycles. They are keenly aware that both employers and individuals view healthcare as increasingly unaffordable and there is tremendous pressure to find ways to mitigate cost growth. The business is highly competitive with non-profit insurers commanding a significant market share while pretax profit margins earned by for profit insurers run in the mid-single digits at best. It’s a cyclical business with trends both positive and negative often running for several years in a row.

    I would bet a lot of money that the net impact of hospital consolidation is to drive prices higher than they would otherwise be. Moreover, as the Obama administration encourages the formation of ACO’s, hospitals will control more of the continuum of care which could make the problem worse even if we gradually move away from the fee for service payment model in favor of bundled payments and global budgets.

  4. Mr. Carol,

    You raise some interesting issues. I would like to see your data, particularly with regard to MLR trends. CRE has a Hospital Consolidation Interactive Public Docket (http://en.wikipedia.org/wiki/Interactive_Public_Docket) available at http://thecre.com/hcf/. Please feel free to post any studies, links or other materials and your comments at CRE to supplement our discussion here.

    I look forward to an in-depth discussion of these key important issues.

  5. Brad, to follow up on your most important point about the relevance of the DQA and alternative policies, CRE’s purpose is in invoking the DQA is far larger than any given study and even large than setting an alternative policy course.

    Instead, CRE is making clear that the studies and other data from all sources will need to comply with federal standards for the quality, objectivity, utility, and integrity if they are to influence federal decisions.

  6. Brad,

    The reason why we focused on the Berenson 2012 study even though it lacks the rigour of other analyses is because it is influential. The study been widely quoted in the media, e.g., National Journal. One reason why the study may be so influential is that it is policy oriented.

    You asked for a clearer example of why the Berenson-Ginsburg study is of concern. When CRE transmitted our study to the Federal Trade Commission, our letter noted that:

    “In a November 29, 2012 press release issued by AHIP, America’s Health Insurance Plans announced the filing of an amicus brief. The AHIP amicus brief included a quote from a precursor to the above cited study. In the precursor study, published in Health Affairs, Paul Ginsburg and Robert Berenson wrote that ‘providers’ growing market power to negotiate higher payment rates from private insurers is the ‘elephant in the room’ that is rarely mentioned.’ (2010) By referencing the earlier study in its press
    release, AHIP illustrates that the study analyzed by CRE is the ‘latest and greatest’ work in a series of studies by the authors on the topic.” The complete letter is available here, http://thecre.com/hcf/wp-content/uploads/2013/09/CRE-FTC.Gaynor.Letter.pdf.

    Thus, two reasons why the study we analyzed is significant is that: 1) it’s not an isolated study, rather its part of a larger body of work; and 2) the body of work is important, it’s being cited in legal cases.

  7. “The data showing that insurers overall have been keeping a greater share of consumer health care premiums is at stark odds with Berenson’s conclusions regarding declining insurer clout.”


    Insurer claims costs consist of two components – utilization of services, tests, procedures and drugs, and PRICES for each of those. Every large insurer will tell you that prices for hospital inpatient and outpatient services, tests and procedures were the biggest single driver of their medical claims costs in recent years driven mainly by increasing hospital market power.

    MLR’s declined because utilization declined and drug spending decelerated as a number of high selling drugs lost patent protection and dropped drastically in price once the six month exclusivity period expired and generic competition intensified.

    There are surprisingly few economies of scale in the hospital business. There is some benefit in the purchase of supplies and access to investment capital is greater. However, since at least 60% of hospital costs are for employee wages and benefits, the large systems pay at least the same going rate as the smaller hospitals and often pay a premium for doctors which they offset by charging commercial payers higher prices based on their local or regional market power.

  8. Bruce
    Can you give a clearer example of why a study like the one above concerns you?

    Based on the lit, hospitals consolidating and winning gains against providers goes beyond theory and is far from an anathema to those who follow the marketplace.

    Qualitative in nature, the study does not have the rigor of others in the empirical literature, and constitutes one of many yes–but as I said above, carries themes familiar to many.

    I understand your point on the DQA, but translate how you think purging the study results in alternate policy?

    I assume you wish to set an example?


  9. The DQA is an interesting approach – not sure much attention has gone into looking at this aspect of ACA …