Tag: Costs

Matthew’s health care tidbits: Hospital System Concentration is a Money Machine

Each week I’ve been adding a brief tidbits section to the THCB Reader, our weekly newsletter that summarizes the best of THCB that week (Sign up here!). Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

For today’s health care tidbits, there’s an old chestnut that I can’t seem to stay away from. I was triggered by three articles this week. Merril Goozner on GoozNews looked at the hospital building boom. Meanwhile perennial favorite Sutter Health and its price-making ability came up in a report showing that 11 of the 19 most expensive hospital markets were in N. Cal where it’s dominant. Finally the Gist newsletter pointed out that almost all the actual profits of the big health systems came from their investing activities rather than their operations.

None of this is any great surprise. Over the past three decades, the big hospital systems have become more concentrated in their markets. They’ve acquired smaller community hospitals and, more importantly, feeder systems of primary care doctors. Meanwhile they’ve cut deals with and acquired specialty practices. For more than two decades now, owned-physicians have been the loss leader and hospitals have made money on their high cost inpatient services, and increasingly on what used to be inpatient services which are now delivered in outpatient settings at essentially inpatient rates. Prices, though, have not fallen – as the HCCI report shows.

Source: HCCI

The overall cost of care, now more and more delivered in these increasingly oligopolistic health systems, continues to increase. Consequently so do overall insurance premiums, costs for self insured employers and employees, and out of pocket costs. And as a by-product, the reserves of those health systems, invested like and by hedge funds, are increasing–enabling them to buy more feeder systems.

Wendell Potter, former Cigna PR guy and now overall heath insurer critic, wrote a piece this week on how much bigger and more concentrated the health plans have become in the last decade. But the bigger story is the growth of hospital systems, and their cost and clout. Dave Chase likes to say that America has gone to war for less than what hospitals have done to the American economy. That may be a tad hyperbolic, but no one would rationally design a health care environment where non-profit hospitals are getting bigger and richer, and don’t seem to be able to restrain any aspect of their growth.

Hospitals Must Give Up Power to Save Healthcare


(This is the sixth in a series of excerpts from Terry’s new book, Physician-Led Healthcare Reform: a New Approach to Medicare for All, published by the American Association for Physician Leadership.)

As hospital systems become larger and employ more physicians, healthcare prices will continue to rise and independent doctors will find it harder to remain independent. Hospitals will never fully embrace value-based care as long as it threatens their primary business model, which is to fill beds and generate outpatient revenues. To create a viable, sustainable healthcare system, the market power of hospitals must be eliminated.

Federal antitrust policy is not adequate to handle this task. Even if the Federal Trade Commission had more latitude to deal with mergers among not-for-profit entities, the industry is already so consolidated that the FTC would have to break up health systems involving thousands of hospitals. Such a gargantuan effort would be practically and legally unfeasible.

All-payer Systems

 The government could curtail health systems’ market power without breaking them up. For example, either states or the federal government could adopt “all-payer” models similar to those in Maryland and West Virginia. Under the Maryland model introduced 40 years ago, every insurer, including Medicare, Medicaid, and private health plans, pays uniform hospital rates negotiated between the state and the hospitals.

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Americans Are Worried About the Cost of Their Healthcare (and they have good reason)


Last year, the Patient Council of the Right Care Alliance conducted a survey in which over 1,000 Americans answered questions about what worried them most about their healthcare. We asked questions about access to care, concerns about misdiagnosis, and risks of treatment, which we reported on in our last THCB piece about the What Worries You Most survey.

We also asked people to rank their concerns about the costs of their care, in five questions that covered cost of care, cost of prescription drugs, cost and availability of insurance, and surprise billing. In the time since we ran the survey, everything has changed in American healthcare. The COVID19 pandemic is filling emergency rooms wherever the epidemic arrives. Bills are likely to be high, for both patients and insurers, and it is still far from clear how they will be paid. Americans are likely to continue to worry deeply about healthcare costs, with good reason, since it’s only in America that someone can go bankrupt due to seeking medical care.

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Is Your Lack of “MQ” Costing You Money ?

As health reform continues to play out across state legislatures and within Washington, employers continue to wrestle with rising costs and the corrosive effects of skyrocketing medical trends. It’s clear that there is enormous variability among employers in their confidence and abilities to identify, mitigate and manage the complexities of the employer sponsored healthcare delivery system.

Many industry pricing and billing practices are opaque. Employers are not always getting good advice and often have to entrust the management and control of employee benefit plans to generalists who do not have the time, resources or ability to engage in managing a corporate expense that has eclipsed a composite average of $11,000 per covered employee.

If employer sponsored healthcare is going to survive to drive market based changes that cut fraud, waste and insist on personal health improvement, corporate decision makers must improve their Medical Quotient (MQ). While larger employers such as Safeway have begun to reap the dividends of lower costs by driving employee health improvement and employee engagement through prevention and chronic illness management, small and mid-sized businesses are increasingly getting failing scores for understanding and managing their own cost drivers.

Success in managing medical costs begins with understanding one’s own MQ and committing to improve it against a rapidly changing market that is exceeding the rate of change of many HR and financial professionals. Jack Welch once commented, “When the rate of change outside an organization exceeds the rate of change within, the end is near.” While ignorance can be bliss, it is an expensive consequence in employer sponsored healthcare. Can HR generalists and less engaged CFOs and CEOs finally grab the horns of their own population health costs and drive toward a healthier tomorrow?Continue reading…

No Savings from Raising Medicare Age

The Congressional Budget Office released an issue brief Tuesday that suggested lifting Medicare’s eligibility age from 65 to 67 would save the federal government 5 percent on projected outlays over the next decade, and only “a small share of those people would end up without health insurance.” The idea has been touted by numerous deficit reduction proposals, including those from Republican Paul Ryan and Democrat Alice Rivlin, the former CBO director.

It’s a bad idea, says Aaron Carroll, a professor at the Indiana University School of Medicine and director of its Center for Health Policy and Professionalism Research. “No one should be under the illusion that the federal government will save money by raising the Medicare eligibility age,” he said in an interview after attacking the report on The Incidental Economist website, which is widely read by health policy researchers and analysts.

First, it’s a cost-shifting plan, not a cost-cutting plan, he pointed out. “Someone has to pay for the health care of those older workers.”

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It’s a Healthy Expense That CEOs DREAD … Well, WAKE UP!!!

Most chief executives in America DREAD the nightmare they experience each year when it comes time for their companies’ annual health insurance renewal.

Just as with any nightmare, of course, the answer is to wake up.

Unfortunately, most CEOs can’t wake up from this nightmare because they don’t have a clue how to manage skyrocketing employee health costs — now the third largest expense in business today.

That’s hardly surprising, given that the healthcare industry appears at first to be completely immune from normal market forces and economic incentives. I learned this shortly after I graduated from college with a Master of Health Administration and started running hospitals — 10 different hospitals, in fact, in five different states. And as I traveled the country, I became fascinated with the economics of health care. Costs kept surging year after year, far outpacing inflation or average earnings.

What’s more, there seemed to be a curious lack of checks and balances in the system. As providers, we all made more money the more patients we saw. The government paid us our costs, so the more we spent to attract the doctors who could admit the most patients, the more we got paid by the government.

Where were the market incentives, the economies of scale, that drive other industries? Who had a financial incentive to keep people from falling off the health cliff and getting sick? The answer is, no one did. We all made more money by driving our expensive ambulances up to the bottom of the cliff and waiting for the next person to fall off.

It’s no secret what causes people to fall off that cliff. Poor health habits represent the cause of the majority of health claims. Indeed, six out of seven full-time workers in the U.S. — that’s 86 percent of them — suffer from a chronic health condition.

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Hey CEOs, Want to $ave Cash? Here’s What Few See

In my last post, I described the nightmare that CEOs in America face when dealing with employee health costs, which have become the third-largest expense in business. I also promised to outline the simple steps that CEOs can take to rein in these spiraling health costs.

My first suggestion is to employ a tried and true management technique that every CEO learned in business school — one that gets economic incentives working for you rather than against you. I’m referring to the old adage: If you want to achieve a business objective — be it launching a new product or reducing employee health costs — you need to incentivize your managers to help you succeed.

Yet, I doubt there’s a CEO in America who offers bonuses or other incentive pay to the HR and benefits managers who can most effectively reduce these crippling employee health costs.

Why not? Isn’t that just basic Management 101?

Ironically, incentivizing your HR and benefits managers doesn’t cost you any money, it doesn’t require an outside consultant, and it can happen in a matter of minutes regardless of the size of your company. Just tell your HR and benefits managers that if they manage to reduce employee claims costs or the cost of your company health plan (but not its benefits), you’ll give them a financial reward.

Giving a piece of any savings in health costs to the people who can make it happen is just common sense — no different in essence from paying a higher commission to your best salespeople.

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Price Tags and Haggling in an Exotic Market

A friend of mine recently took an exotic trip. While shopping in a market, she picked up an appealing item and asked the seller what it cost. She was given a price that seemed high, and paused to consider whether the impulse seemed justified. The shopkeeper grew confused in the silence. Finally he asked my friend, “Don’t you want to know if I can do better?”

Clearly this person was outside of her bargaining comfort zone. Many – perhaps most – Americans are accustomed to paying the price as written on a tag. If you have to ask, you can’t afford it, or so I was told growing up in suburban shopping malls.

American consumers make the same assumptions as they search for transparency in health care costs. Obviously there are charges for these services – they are clearly written on the bills after the services are delivered. So why is it so hard to find out the cost of a service before it is performed? Here it is essential for the customer to understand that the charge and the price paid may be quite different; in fact, they are expected to be different. The health care consumer is not shopping in a chain store whose clerks forgot to stamp the items with their prices. On the contrary, the confused shopper has stumbled into an exotic market without a clue on how to haggle.

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Essential Health Benefits: Balancing Costs, Coverage, And Necessity

The much anticipated Institute of Medicine Report on essential health benefits (EHB) was released last week with a series of recommendations that answered some questions and raised many more. The report offers a very important opportunity for researchers, policymakers, providers and patients to fill in some of the white space between the recommendations.

Background on EHB in the Affordable Care Act and some Legislative History

The Affordable Care Act (ACA) tasked the IOM to make recommendations on the methods for determining and updating the essential health benefits that must be offered by qualified health plans seeking to participate in exchanges as defined in section 1301 of the statute. The ACA identified ten categories of items and services that must be included in a package of benefits:

  • Ambulatory patient services
  • Emergency services
  • Hospitalization
  • Maternity and newborn care
  • Mental health and substance use disorder services, including behavioral health treatment
  • Prescription drugs
  • Rehabilitative and habilitative services and devices
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

The Affordable Care Act did not have a conference committee report, which is the product of the House and Senate working to resolve differences between the two chambers’ versions and also helps to highlight legislative intent. So the long history of the decisions behind the language and legislative intent is not as apparent.  Briefly, Congress looked at many design models and previous bills, such as HR 3600 — one of the health reform bills put forward during the Clinton administration — which contained 61 pages of details on benefits. This approach was was felt to be too detailed and prescriptive.  Staff from Senator Kennedy’s Health, Education, Labor and Pensions Committtee used the Massachusetts language on exchange benefits and its promulgated regulations and then made important additions such as habilitative services (educational or long term services, often associated with long terms disabilities or conditions such as autism).

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How Much Does it Cost to Have a Baby?

When my wife delivered our second child in 2008, the hospital sent our health insurance company a bill for $8569. The insurance company then wrote off $4117 of that bill, paid $4352, asked us for a copayment of $100. When we found out last year that we were expecting again, we noted that my wife’s new insurance plan requires us to pay 20% coinsurance for all non-preventive care. That would have amounted to several hundred dollars of our 2008 bill, and knowing the rapid rate of health care inflation, we thought it would be good to find out how much it would cost this time around. So we went back to the same hospital, where we expect our third child to be born in a few weeks, and asked if they could give us an estimate of the charges. It seemed like a reasonable enough request, especially since the pre-admission consent form we signed specifically said that patients had a right to know what the hospital charged for its services.

We’re just looking for a ballpark number for our flexible savings account, we said. The charge for an uneventful labor, vaginal delivery and single overnight stay. We understand that unexpected things can happen in childbirth, and we won’t hold you to it.

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