Sutter Health destroyed 192 boxes of evidence in antitrust case, judge says

Dive Brief:

  • A California superior court judge ruled that Sutter Health intentionally destroyed 192 boxes of documents that were involved in a lawsuit involving employers and labor unions that alleged the health system abused its market power and charged inflated prices, reported California Healthline.
  • The United Food and Commercial Workers and its Employers Benefit Trust initially filed the case in 2014 alleging that Sutter Health required health plans to include all Sutter hospitals in networks.
  • San Francisco County Superior Court Judge Curtis E.A. Karnow said that Sutter knew the evidence “was relevant to antitrust issues” and the company was “grossly reckless.” A Sutter spokeswoman told California Healthline that the incident was a “mistake made as part of a routine destruction of old paper records.”

Dive Insight:

The recent ruling doesn’t put Sutter Health in a great light. The nonprofit system of 24 hospitals based in Sacramento reportedly destroyed documents related to the case —  and its actions miffed the judge in the case.

Of course, this issue goes beyond destroying records, Sutter Health and California. The case involves a growing health system that allegedly increased prices to employers and employees while gaining a larger market foothold.

Mergers and acquisitions continue to become a common way for health systems to reduce costs, resolve inefficiencies and gain a larger market share. However, having one system own a large part of the healthcare market also inflates healthcare prices. Brent Fulton, assistant adjunct professor at Petris Center in the School of Public Health, University of California, Berkeley, recently wrote in a Health Affairs article “reviews of studies of hospital markets have found that concentrated markets are associated with higher hospital prices, with price increases often exceeding 20% when mergers occur in such markets.”

Sutter Health holds more than 45% of the healthcare market share in six Northern California counties. That gives the system leverage over employers. If employers don’t come to an agreement with Sutter Health, employees have limited options in those counties. Sutter Health charges about 25% higher than other California hospitals, according to the University of Southern California.

Those costs are higher if that care is considered out-of-network. Last year, Sutter Health allegedly asked employers to waive their rights to sue and to agree to arbitration following a court ruling that employers and health plans can seek class-action status in a lawsuit pertaining overcharges against Sutter Health. Those who didn’t agree were threatened to lose access to discounted in-network prices and pay higher out-of-network costs.

The court filing states the parties should not expect further orders in the case until after mid-December. Industry experts are awaiting the results as the trend of M&A continues and stakeholders question who the activity is benefiting: the companies or the patient?


Why Major Hospitals Are Losing Money By The Millions

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A strange thing happened last year in some the nation’s most established hospitals and health systems. Hundreds of millions of dollars in income suddenly disappeared.

This article, part two of a series that began with a look at primary care disruption, examines the economic struggles of inpatient facilities, the even harsher realities in front of them, and why hospitals are likely to aggravate, not address, healthcare’s rising cost issues.

According to the Harvard Business Review, several big-name hospitals reported significant declines and, in some cases, net losses to their FY 2016 operating margins. Among them, Partners HealthCare, New England’s largest hospital network, lost $108 million; the Cleveland Clinic witnessed a 71% decline in operating income; and MD Anderson, the nation’s largest cancer center, dropped $266 million.

How did some of the biggest brands in care delivery lose this much money? The problem isn’t declining revenue. Since 2009, hospitals have accounted for half of the $240 billion spending increase among private U.S. insurers. It’s not that increased competition is driving price wars, either. On the contrary, 1,412 hospitals have merged since 1998, primarily to increase their clout with insurers and raise prices. Nor is it a consequence of people needing less medical care. The prevalence of chronic illness continues to escalate, accounting for 75% of U.S. healthcare costs, according to the CDC.

Part Of The Problem Is Rooted In The Past

From the late 19th century to the early 20th, hospitals were places the sick went to die. For practically everyone else, healthcare was delivered by house call. With the introduction of general anesthesia and the discovery of powerful antibiotics, medical care began moving from people’s homes to inpatient facilities. And by the 1950s, some 6,000 hospitals had sprouted throughout the country. For all that expansion, hospital costs remained relatively low. By the time Medicare rolled out in 1965, healthcare consumed just 5% of the Gross Domestic Product (GDP). Today, that number is 18%.

Hospitals have contributed to the cost hike in recent decades by: (1) purchasing redundant, expensive medical equipment and generating excess demand, (2) hiring highly paid specialists to perform ever-more complex procedures with diminishing value, rather than right-sizing their work forces, and (3) tolerating massive inefficiencies in care delivery (see “the weekend effect”).

How Hospital CEOs See It

Most hospital leaders acknowledge the need to course correct, but very few have been able to deliver care that’s significantly more efficient or cost-effective than before. Instead, hospitals in most communities have focused on reducing and eliminating competition. As a result, a recent study found that 90% of large U.S. cities were “highly concentrated for hospitals,” allowing those that remain to increase their market power and prices.

Historically, such consolidation (and price escalation) has enabled hospitals to offset higher expenses. As of late, however, this strategy is proving difficult. Here’s how some leaders explain their recent financial struggles:

“Our expenses continue to rise, while constraints by government and payers are keeping our revenues flat.”

Brigham Health president Dr. Betsy Nabel offered this explanation in a letter to employees this May, adding that the hospital will “need to work differently in order to sustain our mission for the future.”

A founding member of Partners HealthCare in Boston, Brigham & Women’s Hospital (BWH) is the second-largest research hospital in the nation, with over $640 million in funding. Its storied history dates back more than a century. But after a difficult FY 2016, BWH offered retirement buyouts to 1,600 employees, nearly 10% of its workforce.

Three factors contributed to the need for layoffs: (1) reduced reimbursements from payers, including the Massachusetts government, which limits annual growth in healthcare spending to 3.6%, a number that will drop to 3.1% next year, (2) high capital costs, both for new buildings and for the hospital’s electronic health record (EHR) system, and (3) high labor expenses among its largely unionized workforce.

“The patients are older, they’re sicker … and it’s more expensive to look after them.”

That, along with higher labor and drug costs, explained the Cleveland Clinic’s economic headwinds, according to outgoing CEO Dr. Toby Cosgrove. And though he did not specifically reference Medicare, years of flat reimbursement levels have resulted in the program paying only 90% of hospital costs for the “older,” “sicker” and “more expensive” patients.

Of note, these operating losses occurred despite the Clinic’s increase in year-over-year revenue. Operating income is on the upswing in 2017, but it remains to be seen whether the health system’s new CEO can continue to make the same assurances to employees as his predecessor that, “We have no plans for workforce reduction.”

“Salaries and wages and … and increased consulting expenses primarily related to the Epic EHR project.”

Leaders at MD Anderson, the largest of three comprehensive cancer centers in the United States, blamed these three factors for the institution’s operational losses. In a statement, executives attributed a 77% drop in adjusted income last August to “a decrease in patient revenues as a result of the implementation of the new Epic Electronic Health Record system.”

Following a reduction of nearly 1,000 jobs (5% of its workforce) in January 2017, and the resignation of MD Anderson’s president this March, a glimmer of hope emerged. The institution’s operating margins were in the black in the first quarter of 2017, according to the Houston Chronicle.

Making Sense Of Hospital Struggles

The challenges confronting these hospital giants mirror the difficulties nearly all community hospitals face. Relatively flat Medicare payments are constraining revenues. The payer mix is shifting to lower-priced patients, including those on Medicaid. Many once-profitable services are moving to outpatient venues, including physician-owned “surgicenters” and diagnostic facilities. And as one of the most unionized industries, hospitals continue to increase wages while drug companies continue raising prices – at three times the rate of healthcare inflation.

Though these factors should inspire hospital leaders to exercise caution when investing, many are spending millions in capital to expand their buildings and infrastructure with hopes of attracting more business from competitors. And despite a $44,000 federal nudge to install EHRs, hospitals are finding it difficult to justify the investment. Digital records are proven to improve patient outcomes, but they also slow down doctors and nurses. According to the annual Deloitte “Survey of US Physicians,” 7 out of 10 physicians report that EHRs reduce productivity, thereby raising costs.

Harsh Realities Ahead For Hospitals

Although nearly every hospital talks about becoming leaner and more efficient, few are fulfilling that vision. Given the opportunity to start over, our nation would build fewer hospitals, eliminate the redundancy of high-priced machines, and consolidate operating volume to achieve superior quality and lower costs.

Instead, hospitals are pursuing strategies of market concentration. As part of that approach, they’re purchasing physician practices at record rates, hoping to ensure continued referral volume, regardless of the cost.

Today, commercial payers bear the financial brunt of hospital inefficiencies and high costs but, at some point, large purchasers will say “no more.” These insurers may soon get help from the nation’s largest purchaser, the federal government. Last month, President Donald Trump issued an executive order with language suggesting the administration and federal agencies may seek to limit provider consolidation, lower barriers to entry and prevent “abuses of market power.”

With pressure mounting, hospital administrators find themselves wedged deeper between a rock and a hard place. They know doctors, nurses, and staff will fight the changes required to boost efficiency, especially those that involve increasing productivity or lowering headcount. But at the same time, their bargaining power is diminishing as health-plan consolidation continues. The four largest insurance companies now own 83% of the national market.

What’s more, the Centers for Medicare & Medicaid Services (CMS) announced last week a $1.6 billion cut to certain Medicare Part B drug payments along with reduced reimbursements for off-campus hospital outpatient departments in 2018. CMS said these moves will “provide a more level playing field for competition between hospitals and physician practices by promoting greater payment alignment.”

The American healthcare system is stuck with investments that made sense decades ago but that now result in hundreds of billions of dollars wasted each year. Hospitals are a prime example. That’s why we shouldn’t count on hospital administrators to solve America’s cost challenges.

Change will need to come from outside the traditional healthcare system. The final part of this series explores three potential solutions and highlights the innovative companies leading the effort.


What does “profit” mean for U.S. hospitals?

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The issue: More than half of U.S. hospitals lose money, at least on patient care. But some hospitals are very profitable, with the top 10 earning more than $163 million, the authors report. Crunching the data points to some important factors in whether hospitals make or lose money, including whether they are part of a large hospital group, enjoy market or regional dominance, and have a higher proportion of patients covered by private insurance.

The takeaway: A hospital’s status as a nonprofit or for-profit has virtually no significance when it come to the question of making money—but other factors, like local market power, make a big difference.

To identify the characteristics of the most profitable US hospitals, we examined the profitability of acute care hospitals in fiscal year 2013, measured as net income from patient care services per adjusted discharge. Based on Medicare Cost Reports and Final Rule Data, the median hospital lost $82 for each such discharge. Forty-five percent of hospitals were profitable, with 2.5 percent earning more than $2,475 per adjusted discharge. The ten most profitable hospitals, seven of which were nonprofit, each earned more than $163 million in total profits from patient care services. Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals. Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability than hospitals that did not have these characteristics. These findings can inform policy reforms, while providing a baseline against which to measure the impact of any subsequent reforms.

What Is the Role of Antitrust in a Free-Market Economy?

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Opening remarks by Luigi Zingales to the Stigler Center conference: “Is There a Concentration Problem in America?”

What is the role of antitrust in a free-market economy? Historically, economists have been divided on this point. Even Milton Friedman himself admits to having changed his views, turning from a “great supporter of antitrust laws” to “the conclusion that antitrust laws do far more harm than good.”  Any economic analysis of the costs and benefits of antitrust enforcement, however, must start from the empirical evidence on the existence of a concentration problem and its potential effects.

Overall, in the last twenty years these questions have received relatively little attention, and the presumption that concentration was not an issue prevailed. Not so in the past year. Starting with a report from the Council of Economic Advisers and an article in The Economist, concerns about an increase in concentration began to surface in the public debate.   

Yet, we know that all concentration measures have great shortcomings. Thus, these measures alone cannot be used to infer that there is a concentration problem in America. The more important question is whether this possible increase in concentration has translated into an increase in firms’ market power and whether this increase in market power has caused major welfare distortion.   

To try and answer these questions, we decided to bring together world experts on these topics in a conference organized by the Stigler Center. In preparation for this conference, the Stigler Center’s blog ProMarket, has gathered the opinions of many of these world experts. We collect them here for convenience of the conference participants. We hope they can help as stimuli for an ample and lively debate during the conference.

Antitrust in the Labor Market: Protectionist, or Pro-Competitive?

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Redirecting antitrust enforcement to confront monopsony power would be a substantial departure from the way it has been conducted in recent decades, but just because a policy has been in place for a long time does not mean it is a success, and recent evidence implies a significant policy change is necessary and justified.

The very first sentence of the United States submission to the OECD’s “Global Forum on Competition” in 2015 reads “The U.S. Federal Trade Commission and the Antitrust Division of the Department of Justice do not consider employment or other non-competition factors in their antitrust analysis.”

Employment isn’t a “competition factor?” A growing body of evidence, drawn from both micro and macro sources, implies that the labor market has been slack since the Great Recession thanks to an aggregate demand shortfall. The employment-to-population ratio, labor force participation, job-to-job and geographic mobility, and the job ladder as a whole have all stagnated for almost a decade, and even before 2008 these indicators had barely made up ground since the recession of the early 2000s. Wages have been stagnant, and thus the labor share of national income has been in decline.

Over an even longer period, worker compensation has failed to keep pace with productivity gains per capita. The broadening literature on the rise of earnings inequality between firms, controlling for worker characteristics, implies that workers do not receive sufficient job offers to equalize the earnings they receive across firms. All of these phenomena are explained by rising monopsony power in the labor market.

The recent paper by De Loecker and Eeckhout makes this point explicit: the ability of employers to extract rents in the labor market causes a reduction in the market demand for labor, and this in turn motivates all of the manifestations of a slack labor market just described, as well as the rising markups that are the central finding of that paper. Profits have risen, reflecting rising market power in both labor and product markets—a finding that is consistent with the aggregate analysis done by Barkai.

So if monopsony power constrains employment, why not consider it a factor in antitrust analysis? After all, the premise of economic analysis in antitrust is that market power threatens welfare by restricting output and raising prices. Why doesn’t market power threaten welfare by reducing demand for labor and lowering wages?

Existing antitrust policy treats maximizing consumer welfare as the ultimate end goal of antitrust policy, and that policy aim makes sense in a world of little market power, where profits are low and the economy is assumed to be on its production possibility frontier. In that world, maximizing consumer welfare is a suitable summary statistic for overall wellbeing.

Moreover, since the revolution in antitrust policy associated with Robert Bork put such an emphasis on sustaining an “economies” defense—meaning that potentially efficiency-enhancing aspects of corporate mergers and conduct must be weighed against inefficiencies arising from market power—the potential for monopsony power has been considered a plus. After all, enforcers and courts generally assumed that any gains at the expense of workers would be passed to consumers in the form of lower prices, since product markets would be competitive (and if not, the potential for entry would exert a disciplining influence). In that world, caring about employment, wages, or other labor market outcomes looks like protectionism, impeding the competitive pressure that yields the best outcomes for consumers, and favoring certain privileged “insider” workers at the expense of others.

We know now that we don’t live in that world, and that revelation calls for a wholesale re-think of the proper goals of antitrust policy, very much including whether the sole focus on consumer welfare makes sense when powerful corporations squeeze workers and then pocket the gains for themselves and their shareholders.

What would it actually look like to bring antitrust into the labor market?

As with any enforcement regime, antitrust often starts with the lowest-hanging fruit: out-and-out written evidence of anti-competitive practices, such as the Justice Department’s 2010 lawsuit against Silicon Valley employers for colluding not to hire one another’s programmers. This is partly why the recent increase in the use of non-compete clauses has drawn attention in antitrust circles. As a would-be vertical restraint, non-compete clauses aren’t as easy to target under antitrust as horizontal collusion, but they are there, in writing—prohibitions on competition in the labor market, to the benefit of employers. And they should be banned, or at the very least subjected to a high burden of proof requiring a substantive defense on the part of employers who impose them, plus an affirmative finding that they do not act to reduce wages or restrict job offers.

The same dynamic is at play in prohibitions on poaching in franchising agreements, which Alan Krueger and Orley Ashenfelter recently found to be prevalent in franchising contracts and which, to my knowledge, the federal competition regulators have never touched—even though they do regulate other provisions of those contracts. Franchising networks are a hybrid beast, somewhere between horizontal and vertical, but a blanket prohibition on poaching throughout a franchisor’s network certainly starts to look like a horizontal agreement not to compete.

It’s important to understand, though, that these written restraints of trade are symptoms of the broader decline in worker power, and meaningful antitrust enforcement should go after the causes. Reclassification of workers as independent contractors is a broader concern—not only anti-competitive in itself, but as a means to engage in other coercive conduct and corporate structures. Studies show that reclassifications result in immediate wage reductions and no other changes in terms of employment, suggesting that they amount to employer’s exploiting their wage-setting power by changing the legal structure of their business.

And beyond the act itself, classifying workers as independent contractors allows employers to avoid liability for minimum wage, maximum hours, workplace safety, and a host of other entitlements associated with statutory employment. The idea was that employment inherently signifies control, and with control ought to come responsibility—and by extension, if employers do not bear responsibility, then they should not be able to exercise control. What employers have realized now, as enforcement regimes in both labor and antitrust have weakened, is that they can have the control without the responsibility. For example, contracting terms often prevent workers from simultaneously working for others—an exercise of control if ever there was one, and an anti-competitive vertical restraint in the context of an independent contractor.

Employers can have that control without first establishing themselves as a monopoly—in fact, reclassification is increasingly standard operating procedure in many industries, which means that treating it as a violation of Section 2 of the Sherman Act should not require that outright monopolization must first be shown.

This is the fundamental issue behind the litigation over whether Uber’s drivers ought to be considered employees, and if not, whether the business amounts to a price-fixing conspiracy between the company and hundreds of thousands of independent businesses who drive for it. I’ve written before about the antitrust lawsuit against Uber on these grounds. The case was recently dealt a severe blow in the form of an appellate ruling that upheld the company’s mandatory arbitration clause—meaning that if the lower court decides Uber did not itself void the arbitration clause by hastening the case with a move to summary judgment, then the case will likely be thrown out of court.

That brings us to yet another way in which employers exercise monopsony power: mandatory arbitration and class action waivers for employment claims, about which the Supreme Court is set to hear a case this term. The issue there is that expansive readings of the Federal Arbitration Act have essentially said that individual rights protected by both the constitution and federal statute can be voided by bilateral waivers—as though the parties are equally situated and at liberty to reject such provisions in employment agreements and elsewhere. Of course, the whole point of monopsony is that jobs are scarce, and hence employers have leverage with which to extract concessions, be they out-and-out wage reductions or agreements not to litigate disputes. Thus, another aim of antitrust enforcement in labor markets ought to be bans on litigation waivers between parties that are not similarly situated economically as restraints of trade—and the competition authorities ought to make their views known to the Supreme Court on this issue. After all, private action is a pillar of federal antitrust policy, and so arbitration clauses are not just themselves restraints of trade, but they also inhibit enforcement against other restraints, as the fate of the Uber antitrust case shows.

Finally, there’s the elephant in the room when it comes to antitrust: merger review, the bulk of what the agencies do about enforcing the laws they’re entrusted to carry out. Claims that mergers reduce employment are not entertained as arguments against them—in fact, they are likely to be considered arguments in favor, as they show some motivation for the transaction beyond raising prices for consumers. And yet we know anecdotally that recently-consummated mergers have in fact had adverse employment impacts. A systematic study of the labor market impact of past mergers has yet to be conducted, to my knowledge—such an exercise would be a valuable component of assessing the impact and success of the current competition policy regime, including whether these job losses do actually end up benefiting consumers in the form of lower prices, as merging parties invariably claim, versus their shareholders and executives.

In conclusion, the view that the competition authorities expressed to the OECD in 2015 looks increasingly out of touch with the labor market and the broader macroeconomic conditions that currently exist. It is true that redirecting antitrust enforcement to confront monopsony power would be a substantial departure from the way it has been conducted in recent decades, and as such there are both court decisions and agency policies that go against it. But just because a policy has been in place for a long time does not mean it is a success, and recent evidence implies a significant policy change is necessary and justified—much as an intellectual movement in academia once shifted antitrust policy substantially, it’s time for new evidence to change it once again.

Study: Hospitals on doctor-buying spree raise legal questions

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Bigger and fewer doctor practices drive up prices for patients, employers and taxpayers, several studies confirm.

Hospitals have gone on a doctor-buying spree in recent years, in many areas acquiring so many independent practices they’ve created near-monopolies on physicians.

Research published Tuesday throws new light on the trend, showing that large doctor practices, many owned by hospitals, exceed federal guidelines for market concentration in more than a fifth of the areas studied.

But it goes further, helping answer some of health policy’s frequently asked questions: How could this happen? Where are the regulators charged with blocking mergers that have been repeatedly shown to drive up the price of health care?

The answer, in many cases, is that they’re out of the game.

Doctor deals are typically far too small to trigger official notice to federal antitrust authorities or even attract public attention, finds a paper published in the journal Health Affairs.

When it comes to most hospital-doctor mergers, antitrust cops operate blind.

“You have a local hospital system and they’re going in and buying one doctor at a time. It’s onesies and twosies,” said Christopher Ody, a Northwestern University economist and one of the study’s authors. “Occasionally they’re buying a group of five. But it’s this really small scale” that adds up to big results, he said.

The paper, drawing from insurance data in states covering about an eighth of the population, found that 22 percent of markets for primary care doctors, surgeons, cardiologists and other specialties were “highly concentrated” in 2013. That means that, under Federal Trade Commission guidelines, a lack of competitors substantially increased those doctors’ ability to raise prices without losing customers.

The research didn’t sort physician groups by ownership. But other studies show that large, predominant practices are increasingly owned by hospitals, which see control of doctors as a way to both coordinate care and ensure patient referralsand revenue.

According to one study, hospitals owned 26 percent of physician practices in 2015, nearly double the portion from 2012. They employed 38 percent of all physicians in 2015, up from 26 percent three years earlier.

In the study by Ody and colleagues, only 15 percent of the growth by the largest physician groups from 2007 to 2013 came from acquisitions of 11 doctors or more.

About half the growth of the big practices involved acquisitions of 10 or fewer doctors at a time. About a third of the growth came not from mergers but from hiring doctors out of medical school or other sources.

Federal regulations require notification to anti-monopoly authorities only for mergers worth some $80 million or more — far larger than any acquisition involving a handful of doctors.

Very few of the mergers that drove concentration over the market-power red line — or even further — in the studied areas would have surpassed that mark or a second standard that identifies “presumably anti-competitive” combinations.

But the little deals add up. In 2013, 43 percent of the physician markets examined by the researchers were highly or moderately concentrated according to federal guidelines that gauge monopoly power by market share and number of competitors.

(A market with three practices in a particular specialty, each with a third of the business, would be at the lower end of what’s considered highly concentrated. A market with one doctor group doing at least 50 percent of the business would be highly concentrated no matter how many rivals it had.)

Bigger and fewer doctor practices, fueled largely by hospital acquisitions, do drive up prices for patients, employers and taxpayers, several studies confirm.

Part of the increase results from a reimbursement quirk. Medicare and other insurers pay hospital-based doctors more than independent ones. But another part comes from the lock on business held by large practices with few rivals, Ody said.

“It’s a problem,” said Martin Gaynor, a health care economist at Carnegie Mellon University and former head of the FTC’s Bureau of Economics. “All the evidence that we have so far … indicates that these acquisitions tend to drive up prices, and there’s other evidence that seems to indicate it doesn’t do anything in terms of enhancing quality.”

The American Hospital Association, a trade association, declined to comment on the study since officials hadn’t seen it. But the AHA often argues that “hospital deals are different” and that doctor acquisitions keep patients from falling through the cracks between inpatient and outpatient care.

The FTC has moved to block or undo a few sizable doctor mergers, including an orthopedics deal in Pennsylvania and an attempt by an Idaho hospital system to buy a medical practice with dozens of doctors.

But the agency largely lacks the tools to challenge numerous smaller transactions that add up to the same result, said Ody.

An FTC spokeswoman declined to comment on the study’s findings.

Ody urged state attorneys general and insurance commissioners to look more closely at doctor combos. Sometimes state officials can question mergers overlooked by federal authorities. Or they can block anti-competitive practices, such as when hospitals seek to exclude competitor physicians from insurance networks.

Beyond that, “I hope that people notice this [research], and I hope people think creatively about what kinds of solutions might be appropriate for this,” he said. “I don’t know what they are.”

Market power matters

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It’s the clash of titans.

In January the Massachusetts the Group Insurance Commission (GIC) — the state agency that provides health insurance to nearly a half-million public employees, retirees, and their families — voted to cap provider payments at 160% of Medicare rates. Ignoring Medicare (~1M enrollees) and Medicaid (~1.6M enrollees), the GIC is the largest insurance group in the state.  According to reporting from The Boston Globe, the cap would be binding on a small number of concentrated providers, including Partners HealthCare, one of the largest hospital systems in the state.

David Anderson summed the development up perfectly.

The core of the fight is a big payer (the state employee plan) wants to use its market power to get a better rate from a set of powerfully concentrated providers who have used their market power to get very high rates historically.

Anderson also pointed to a relevant, recent study that illustrates how a specific payer’s and provider’s market power jointly affect prices. In Health Affairs, Eric Roberts, Michael Chernew, and J. Michael McWilliams studied the phenomenon directly, which has rarely been done. Most prior work aggregate market power or prices across providers or payers in markets.

Their source of price data was FAIR Health, which includes claims data from about 60 insurers across all states and D.C. In a county-level analysis, the authors crunched 2014 data for just ten of those insurers that offered PPO and POS plans and that did not have solely capitated contracts. These ten insurers represent 15% of commercial market enrollment. They then looked at prices paid by these insurers to providers in independent office settings for evaluation and management CPT codes 99213, 99214, and 99215. These span moderate length visits to longer visits for more complex patients and collectively represent 21% of FAIR Health captured claims.

They computed insurer market share based on within-county enrollment. They computed a provider group’s market share as the county proportion of provider taxpayer identification numbers (TIN) associated with that group’s National Provider Identifier (NPI) — basically the size of group in terms of number of physicians.

Some of the findings are illustrated in the charts below and are largely consistent with expectations. For all three CPT codes, insurers with greater market shares tend to pay lower prices. That’s shown just below. The biggest price drop occurs when moving from <5% to 5-15% market share. Greater market share than that is associated with still lower prices, but not by as much. For example, insurers with <5% market share pay an average of $86 for CPT code 99213; insurers with 5-15% market share pay 18% less and insurers with ≥15% just a few percent less than that. It’s roughly the same story for other CPT codes.