WASHINGTON – At America’s Health Insurance Plans’ Policy Summit last mong, it was impossible not to hear the theme and message AHIP leadership wanted everyone to eat, sleep and breathe: underlying hospital and group medical practice costs are rising too quickly and insurance plans are merely the conduit for how these costs are passed on to the public.
AHIP President and CEO Karen Ignagni has been on message with this, almost to a fault, at AHIP conferences and events throughout last year and has brought up the topic at seemingly every juncture.
It would be very easy to rebuff AHIP’s blaming of the providers for increased costs by pointing out that insurers last year rolled up record profits, largely on the back of unexpectedly lower healthcare utilization and lower-than-expected unit cost growth.
Yet that would be a partial diversion to their message, and while I may disagree with AHIP’s heavy-handed manner, I have to admit they’ve got a point.
But what is driving the increases from providers?
Some factors that contribute to the meteoric rise of healthcare spending can be agreed upon by payers and providers alike: increased prevalence of chronic diseases and the aging of the population.
Yet there is evidence that business models of large provider groups and hospitals may also play a significant role.
According to a 2008 report from the Congressional Budget Office, “Technological Change and the Growth of Health Care Spending,” the rush to embrace new imaging and diagnostic technology and constructing facilities to house them are also culprits.
The report concluded that while there were a number of factors that have contributed to the growth in healthcare spending over the past four decades, “most analysts have concluded that the bulk of the long-term rise resulted from the healthcare system’s use of new medical services that were made possible by technological advances, or what some analysts term the ‘increased capabilities of medicine.’”
That doesn't sound like a bad thing – after all, we all expect the practice of medical science to push forward with these new technologies to improve healthcare.
However, the report noted “Newer, more expensive diagnostic or therapeutic services are sometimes used in cases in which older, cheaper alternatives could offer comparable outcomes for patients. And expensive services that are known to be highly effective in some patients are occasionally used for other patients for whom clinical benefits have not been rigorously demonstrated.”
Which is a rather cogent argument for increased funding for comparative effectiveness research.
AHIP, however, would like to propose another significant component of rising costs: mergers and consolidation among large healthcare networks, which allow providers to come very close to dictating reimbursement rates in markets where they hold a dominant competitive advantage.
To bolster their case, insurers point to a groundbreaking study released last summer by Massachusetts Attorney General Martha Coakley. “Examination of Health Care Cost Trends and Cost Drivers” collected 2009 data in the state to show variations in total medical expense and it is easy to see that those provider groups with either a strong reputation or a dominant market presence (or both) showed cost variations as much as 50 percent higher than the smaller networks. Even worse, these variations were not mitigated by payment methodology – providers paid on a global payment/risk-sharing model did not show consistently lower medical expenses.
That alone should be chilling to all in the healthcare system who are hoping ACOs and other such risk-sharing models will be a significant driver of healthcare savings in the future. And it also highlights that while there are many programs between payers and providers that are successfully reining in costs on a limited basis, the decades-long adversarial relationship between payers and providers still exists and likely won’t get better any time soon.