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Doctors, hospitals command higher pay in less competitive markets

Insurers cite a new study to support their claim that medical services consolidation leads to higher medical costs.

By Emily Berry — Posted Dec. 10, 2010

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Physicians and hospitals in some markets have enough clout to drive payment levels far above those paid in more competitive markets, a new study shows.

The study, released in November by the Center for Studying Health System Change, examined what four national insurers paid for care in eight markets, from Los Angeles to Richmond, Va. The Washington, D.C., think tank scored each by the average payment insurers made to hospitals and physicians as a percentage of Medicare pay rates.

In the most extreme cases, hospitals were paid nearly five times the Medicare rate for inpatient care and more than seven times the rate for outpatient care. Researchers found less variation in what physicians were paid, but noted that some specialties, particularly anesthesiology, commanded higher payments than those in family medicine (link).

"This is further evidence that hospital consolidation is leading to higher prices for medical services," said Robert Zirkelbach, spokesman for insurance trade group America's Health Insurance Plans. "There is a lot of data and evidence that this trend is occurring."

He pointed to a study in Health Affairs in February that warned about the implications of physician and hospital consolidation in California. He noted that a report issued in January by the Massachusetts attorney general's office found that discrepancies in hospital and physician pay rates were not tied to quality.

The new study was funded by the nonprofit Catalyst for Payment Reform, formerly the Center for Payment Reform, a group of large employers that advocates changing the way doctors and hospitals are paid.

In a statement, American Hospital Assn. President and CEO Rich Umbdenstock called the report "too deeply flawed to be a usable policy tool."

Among other problems with the research, Umbdenstock said, using Medicare payment rates as a benchmark was a flawed approach since Medicare does not cover the cost of delivering care in most cases, prompting hospitals to pass along those costs to other payers.

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