Academic Articles & Reports Roundup

The Source Roundup: June 2024 Edition

Effects of Market Consolidation

Cost, Quality, and Utilization After Hospital-Physician and Hospital-Post Acute Care Vertical Integration: A Systematic Review (Medical Care Research and Review)

Alexandra Harris, Sarah Philbin, Brady Post, Neil Jordan, Molly Beestrum, Richard Epstein, Megan McHugh

To determine the impact of vertical integration, the authors examine the associations between two types of integration, hospital-physician and hospital-Post Acute Care (PAC), and their effect on cost, quality, and utilization of healthcare services as they relate to affordable care. Assessment of these impacts through the lens of financial benefits the found motivations for vertical integration included reduced market competition, by means of vertical foreclosure and transaction cost economics, and exploitation of payment differentials for Medicare coverage. Likewise, operational benefits include enhanced care coordination with overarching mixed outcomes due to fluctuations in utilization. Overall, costs were primarily found to be increased, attributed to self-referrals, with ambiguous or limited evidentiary support for improved quality of care for both hospital-physician and hospital-PAC integrations. Conclusory policy implications suggest further value-based payment programs may influence similar outcomes because of incentivizing vertical integration. The study recommends regulatory oversight moving forward to monitor healthcare market competition and costs.

Why Market Power Matters for Patients, Insurers, and Hospitals (AAMC Research and Action Institute)

Atul Grover, Kendal Orgera, Laura Pincus, Siena Senn, Gabrielle Redford

U.S. health care consolidation concerns have resulted in national attempts to enforce guidelines, task forces, and bills to oversee health care markets as the impact of these consolidations require further investigation. Examination of state level market shares of health systems compared to large insurer groups found high percentages of market share for care systems negatively impact range of services and provider payments. The authors suggest future research should rely on additional factors besides the number of hospitals in a system as findings suggest this may not be an indicative of inpatient volume. Similarly, attention to insurer consolidation, in addition to provider consolidation, is critical for policy makers moving forward for its impact on premium and reimbursement rates.

The Impact of Hospital Consolidation and For-Profit Status on Prostate Cancer Costs and Quality of Care (Journal of Urology)

Katharine F. Michel, Michelle Slinger, S. Bruce Malkowicz, Thomas J. Guzzo, Sumedha Chhatre, Ravishankar Jayadevappa

This paper analyzes the relationship between hospital competition, for-profit status, cost, and quality of care for men sixty-six years and older with prostate cancer on Medicare. Study results found associations of lower rates of competition with high rates of spending as well as emergency department visits, with a higher degree of impact on non-profit hospitals. The authors recommend a need to be cautious when supporting hospital consolidation, and for further research to examine these relationships at a more micro-level and across other diagnoses.

Mission Hospital’s Financial Performance Under HCA (Wake Forest University Health Law and Policy Program)

Mark A. Hall

In February 2019, HCA Healthcare purchased Mission Health system, a previous non-profit entity, making it the fifth largest for-profit hospital in the US. Despite an initial decrease in profits following HCA’s purchase, financial reports reveal that by 2021, Mission’s profits increased to over $100 million a year, 3.5 times its profits from the year prior. The report compares Mission’s financial performance to a set of 11 peer hospitals (based on the hospital’s size, scopes of service, and market and geographic locations). Prior to the acquisition, Mission’s operating profit margin was similar to that of peer hospitals at around 2-4% of revenues but by 2021, margins exceeded all other peer hospitals with a profit margin of 17%. HCA’s list-price mark-ups were at a rate at the top of peer hospitals but was found to not be the primary driver of its profitability as most patients do not pay the mark-up prices and can instead be attributed to maintained low-level patient-care costs. The drop in costs, following the acquisition, was primarily driven by the reduction in staffing from 6.0 FTE per bed in 2018, to 3.7 in 2021 with the average of peer hospitals remaining at 5.1. Mission’s improved profit drivers were in contrast to the expectations of Mission’s board member who, prior to the sale, believed any increase would be associated with reduced purchasing costs and general administrative expenses.

Payment Reform

How Upfront, Predictable Payments Can Improve Primary Care (The Commonwealth Fund)

Corinne Lewis, Celli Horstman, Alexandra Bryan

The Center for Medicare and Medicaid Innovation (CMMI) recently announced the implementation of prospective payment models in which providers are given upfront payments for each patient. Findings suggest positive outcomes from these payment models including improved health, satisfaction, and reduced inequities. The authors encourage examination of previously implemented prospective payment models to ensure success. Pilot programs stressed the benefit of upfront payments, allowing for investment in critical aspects of operating a clinic that may incentivize lowering the cost of care. To avoid limited outcomes, the authors suggest program models that ensure payer alignment, sufficient payment amounts, financial risk management, and long-term implementation.

Physician Group Practices Accrued Large Bonuses Under Medicare’s Bundled Payment Model, 2018–20 (Health Affairs)

Sukruth A. Shashikumar, Zoey Chopra, Jason D. Buxbaum, Karen E. Joynt Maddox, Andrew M. Ryan

The Bundled Payments for Care Improvement Advanced Medicare Payment Model (BPCI-A), which assigns consumers target prices for health care spending, has been extensively studied in hospital settings but little is understood about its efficacy in reducing spending and incentivizing payments in physician group practices. This study aims to compare physician group practices to assess differences in target prices and bundle selections in association to bonuses or penalties as well as investigating changes in program participation during the pandemic. Results indicate higher target price assignments were correlated with large financial bonuses, with larger bonuses going to practices that remained in the program through the COVID pandemic. Core policy implications include the need to assign high target prices based on individual participant’s spending history with the flexibility to choose unrelated bundles of service to avoid program dropout.

Prices Paid to Hospitals by Private Health Plans: Findings from Round 5 of an Employer-Led Transparency Initiative (Rand)

Christopher M. Whaley, Rose Kerber, Daniel Wang, Aaron Kofner, Brian Briscombe

Despite the 2021 federal policy requiring hospitals and insurers to provide price transparency for charged and negotiated rates of common services, there remains a substantial gap in available data. To address these gaps, the authors analyzed variations for a variety of hospital services through claims data from more than 4,000 hospitals across the nation with the exception of Maryland (due to their all-payer-rate-setting program). The study compared standard prices to relative prices (private health plan allowed amount divided by Medicare allowed amounts for the same service, provided by the same hospital) with additional analyses of simulated Medicare prices. Overall totals were over twofold with $77.4 billion worth of spending on services compared to $31.5 billion in simulated Medicare prices for the same services. Further critical findings include increased relative prices that widely vary across the country from 170% of Medicare prices in Arkansas, to more than 300% in California. However, quality of care does not appear to be associated with a specific price range suggesting “employers and purchasers have options for high value facilities that offer high quality at lower prices.” Most importantly, the study found the factor primarily responsible for these price variations is the amount of market share each hospital retains as it impacts their power with mergers being the driving force in price of and access to healthcare.

Healthcare Market Competition

Rethinking Health Care from a Global Perspective: Looking Aboard (The Commonwealth Fund)

Aaron Carroll

The article assesses the current status of the US health care system as “broken” compared to other countries who have successfully implemented universal healthcare for their citizens (Switzerland, Singapore, Canada, Australia, New Zealand, France, and England). The author compares each country on common factors including the baseline care for all citizens, funding, coverage, governmental regulation, and additional insurance options including private and supplemental coverage plans. The author’s analysis suggests universal health care can be a combination of elements that does not have to be all-or-nothing like it is often perceived to be here in the US. Of the countries compared in the article, many of the citizens remain responsible for a variety of out-of-pocket costs such as dental/vision, co-pays, expenditures outside of governmental funded coverage, and prescriptions. Many plans still allow for private coverage options for those who desire additional amenities. The author argues that this type of healthcare coverage can help in eliminating or reducing the risks associated to obtaining health care in a system such as the US that often results in financial ruin and even bankruptcy.

Certificate-of-Need Laws in Healthcare: A Comprehensive Review of the Literature (Southern Economic Journal)

Matthew D. Mitchell

Certificate-of-Need (CON) laws were initially proposed in the late 1960’s as a way to reduce costs, promote access to care, and to protect skilled care facilities.  In 1974, the federal government passed a law that withheld funds from states that did not have CON requirements. Upon determining that the laws were not achieving the projected goals, congress repealed the CON mandate in 1986 but 39 states have some varied form still in existence. CON regulations continue to manifest themselves as reinforcers of local noncompetitive, monopolistic healthcare markets by restricting competition either by incumbent providers acting as CON board member who deny their competitor’s applications or via statutory compliance that limits service duplication. The paper’s aim is to review the academic literature on the subject; identifing and classifing empirical analyses of CON laws by focusing on the four main goals of CON laws: spending reduction, increases in access to care, enhancement of quality of care, and encouraging care for under deserved populations. Further consideration on the implications of and the effects on competition CON has on local health care are also discussed.  The author’s preliminary findings suggest CON laws fail to achieve the goals of reducing costs and promoting access to care, instead favoring incumbents through increases in costs and administrative hurdles for entry into the market that ultimately work to reduce competition.

Is local competition effective in improving quality and efficiency of hospitals? Insights from an asymmetric spatial competition model (Research in Economics)

Domenico Lisi

Traditional empirical examination of the relationship between the impact of competition on health care quality and efficiency have found localized competition improves performance at the expense of outcomes. The authors argue that competition is context-depending due to the nature of competition in a given market. Key factors of nonuniform competition should include predominant localization, specializations, and individual patient factors to align competitors that are based on individualistic characteristics. The findings suggest that genuine competition’s effect on quality in local markets is not singularly contingent on provider volume in a single area, as different providers serve diverse populations and needs. To determine cost-efficiency and quality competition in future studies, the authors suggest a context-specific focus at the level of different clinical specialties among providers, as these factors could lead to broad market enhancement.

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