Health Inc.

Hospitals and Doctors Drove Up California Health Costs

Californians outraged over insurance rate hikes may have some new targets.

Map of California
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A study just out may direct some of their ire toward doctors and hospitals.

The findings, published in Health Affairs, conclude that the state's biggest networks of doctors and hospitals caused insurers to pump up fees. An avalanche of consolidation beginning in the late 1990s gave doctors and hospitals the bargaining power to demand higher payments.

Hikes in insurance premiums in the private sector are the result of this shift in the balance of power between insurers and these physicians and hospitals, the study says. This findings comes on the heels of Democrats' weeks-long crusade against insurers' rate hikes, especially Anthem Blue Cross' move to boost premiums by up to 39 percent in California.

Insurers have countered that the hikes are justified by soaring prices demanded by doctors, hospitals and other health care providers. The new study—by three widely respected health care experts—supports that conclusion, in part, calling providers' ability to force higher prices on insurers the "elephant in the room" when it comes to debating health costs.

Another report last month, by Massachusetts Attorney General Martha Coakley, raised similar questions about whether provider-driven prices could boost the cost of care, even in the face of efforts to make medicine more efficient. As we reported at the time, that implication is somewhat in conflict with findings by researchers at the Dartmouth Health Atlas, whose view that the number of health services, not price, drives health costs is very much in vogue.

Some Dartmouth-style thinkers say changes that encourage physicians to lower the number of services they deliver could drive costs down, such as one current overhaul proposal that would create so-called accountable care organizations. Known as ACOs, these are groups in which physicians and hospitals work together to win incentives from insurers to coordinate high-quality, efficient care.

Sounds good, right? Well, the new report warns that these organizations may be a doubled-edged sword. California's experience "suggests that proposals to promote integrated care through models such as accountable care organizations... could lead to higher rates for private payers" because when doctors and hospitals join such groups, they enhance their bargaining leverage and win higher rates from insurers, who in turn boost their premiums.

Berenson and Coakley's reports—which focus on specific communities, both with unusual health systems—don't necessarily undercut Dartmouth's findings, as defenders of the research have been quick to point out. But, they do suggest a more complex set of factors that contribute to cost growth, and as Berenson and his coauthors suggest, may offer policy ideas —such as setting limits on prices—that could bring swifter relief.

Weaver is a reporter for Kaiser Health News, a nonprofit news service.

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