More Evidence of Hospital Consolidation’s Pernicious Effects

The New York Health Foundation, which is supported by the state government, did a fairly exhaustive review of the commercial contracting practices of the hospitals in the state, including rates and factors which may influence the rates.  Like most states New York has been hit with high health spending and hospital systems are a prime causative suspect.   (NY Hospital Report)   Hospital inpatient and outpatient spending is about 40% of total commercial plan expense and unit price increases are more a driver of growth than is increased utilization, consistent with national trends.  And as many others have noted, the New York researchers find that the complexity of hospital contracting and reimbursement practices makes it very difficult to identify, much less compare, commercial prices.  But it is clear that there is significant price variation within the three primary regions into which the state was divided.  This variation does not appear to be consistently related to quality, as some high-priced hospitals don’t score well on some quality measures, while some low-priced ones do.  And in a somewhat surprising finding, hospitals with large numbers of Medicare and Medicaid patients often have lower commercial prices, at least in the New York City Metropolitan area.  This may reflect the fact that these hospitals are often in more competitive hospital markets or less consolidated ones.  Finally, the researchers conclude that hospitals and hospital systems with large market shares have higher prices, consistent with general economic theory on the effects of competition, and that rural hospitals with little or no competition also have higher prices.  The authors also note that these high-market share hospitals tend to use contract provisions that further inhibit competition and open information about pricing.  There are a serious of recommendations regarding control of hospital pricing, including simplifying and unifying hospital reimbursement methods, banning certain contract provisions and public disclosure of all prices.  How about doing something to reduce health systems market share?  Not much new in the report, but a very solidly researched effort that confirms what much other research has shown–hospitals are the cause of most of our health spending growth.