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More Caution from California

A new study released in Health Affairs highlights a potential cause of out-of-control growth in health care expenditure. The interesting trend, taking California as a bellwether case-study, suggests that cost growth is a result of an increased integration/consolidation of provider market share in response to low public payment rates. These health system ‘mergers’ (such as hospital acquisitions, IPAs and HMOs) increase market power, thus allowing for a ‘monopolized’ increase in payment rates. Insurers argue that these increases in costs result in a parallel increase in premiums.

More interesting, the study suggests that the proposed Accountable Care Organizations (ACOs) and other care integration models in federal health reform could result in similar higher rates for private payers. Interviews in the study suggest that the ultimate intention of care coordination/disease management (from a provider perspective) may simply be increased market share. The authors also suggest that current antitrust policy has not been effective in challenging hospital mergers. They conclude that “unless market mechanisms can be found to discipline providers’ use of their growing market power, it seems inevitable that policy makers will need to turn to regulatory approaches, such as putting price caps on negotiated private-sector rates and adopting all-payer rate setting.”

Maryland just so happens to have a working all-payer rate setting regulation (coupled with relief for lower hospital Medicare/Medicaid reimbursement rates), and as seen by the graph below has effectively been able to control cost growth without jeopardizing quality. Read more about the mechanism in a recent post.

In other news, sources indicate that a revised White House ‘Compromise 2.0’ bill will be unveiled on Wednesday that will most likely include Republican ideas from last week’s Health Care Summit like easing the interstate sale of insurance and stronger malpractice reform language. The bill is intended to be a modest package, and Obama will likely outline that it be pursued through reconciliation to be passed into law alongside the Senate bill.