The rise in health costs since the 1990’s have mirrored an ongoing trend of mergers and acquisitions among provider and hospital groups. (Photo: Shutterstock)

A new study looks at efforts by state governments to curb health care cost increases linked to provider consolidation. “State Policies on Provider Market Power” is a report by Catalyst for Payment Reform (CPR) and The Source on Healthcare Price and Competition at UC Hastings College of the Law. CPR, a nonprofit advocate for payer reforms, and UC Hastings reviewed how state legislatures have addressed the issues surrounding increased provider consolidation.

The study said the rise in health costs since the 1990s have mirrored an ongoing trend of mergers and acquisitions among provider and hospital groups.

Related: Health system consolidation: Can employer groups, brokers survive it?

“Research shows that the main driver of health expenditures in the U.S. is prices in the commercial insurance sector,” the report said. “Research also shows that consolidated provider market power has eroded commercial health plans’ (and other purchasers’) negotiating leverage in many markets, suggesting that regulation and public policy solutions may be needed to re-balance the playing field.”

The study noted that some health costs have risen to 400 percent over what Medicare charges. “The chasm between Medicare and commercial prices grew significantly over the past two decades: in the 1990s, the average hospital received 110 percent of Medicare’s rates for inpatient care; by 2017 the gap widened to 204 percent of Medicare’s rates for inpatient care, and almost 300 percent of Medicare for outpatient care,” the report said.

State interventions to improve competitiveness

A number of researchers have pointed out that although consolidation has the potential to reduce costs, the opposite has often happened. Worse yet for rural states, consolidation is also blamed for cutbacks in services in some cases. In response, states have become a laboratory for experiments on regulating provider consolidation.

“While most states have antitrust statutes in place, some go further to grant the state the authority to review, prevent, monitor or mitigate the impacts of provider consolidation and market power,” said Suzanne Delbanco, executive director of CPR.

These steps include:

  • Laws implementing mandatory all-payer claims databases, collecting health care claims data from state and federal agencies, along with commercial insurers. Twenty states have adopted laws in this area.
  • The same number of states have attempted to increase competition by banning agreements by providers to not charge any payer less than what they charge to the area’s dominant health plan (known as “most favored nation” clauses).
  • Seven states have established commissions to promote competition and control costs through exposing high and variable prices, implementing cost controls, or overseeing provider merger activity.
  • A growing number of states are expanding telehealth policies to address barriers to its use and to enhance competition among health care providers.

Innovation in regulation

The report noted that some anti-competitive steps have only been tried on a limited basis. For example, only a few states have laws governing the growing number of accountable care organizations. And although most states have a formal rate review program, only Rhode Island has given its Department of Insurance the authority to create affordability standards.

The report also looks at the controversial Certificate of Need (CON) laws, which have been criticized as limiting the opportunities for providers to grow in under-served areas. However, some state governments are re-instating CON laws because they are thought to discourage predatory market practices. The report concluded that the jury is still out on CON laws: “The research on CON is mixed; it is not clear whether CON laws serve as a barrier to or facilitator of competition,” the report said.

Other steps to improve competition were also reviewed in the report. These include blocking mergers through existing anti-trust laws, providing more resources to areas such as anti-trust enforcement, putting conditions on health care mergers, and improving data collection and publication on market practices in their state.

“The vast majority of innovative approaches to lowering health care costs and promoting competition are coming out of the states,” said Jaime King, the Bion M. Gregory Chair in Business Law at UC Hastings. “States should share their ideas and collaborate to capitalize on the most successful legislative and regulatory approaches.”

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