Let’s get my biases out of the way first so you can read this with the appropriate skepticism. First, I’m a big believer in competition in the business world. Fair and vigorous competition benefits consumers, because it drives greater choice, better quality and lower prices. Second, I believe that the same economic principle applies to health care, because health care operates just like a business in any other industry. Fair and vigorous competition in health care benefits patients and enrollees, because it drives greater choice, better quality and lower prices.
That’s why I get a little itchy when I read that yet another hospital or hospital system has decided to diversify into the health insurance business (see box). The term of art for the result of this business decision is called a provider-sponsored health plan. They are a form of vertical integration in which one company (the hospital) assumes control over another stage in the historic production process (providing health benefits) normally performed by a separate company (a commercial insurance company).
In the old days—which I define as when I started my health care journalism career more than 30 years ago—the Big Three in the health care economic equation were hospitals, doctors and health plans. They were separate, competing economic units that worked together in their own tortured way to deliver care and have someone pay for it. Adversarial and antagonistic were two words often used to describe the relationships among the three parties back in the day.
More recently, adversarial and antagonistic have been replaced by two other words: Collaboration and integration. And that’s good. If you lead a business that pays for employee health benefits, then hospitals, doctors and health plans working together to improve the quality, safety and efficiency of care and improve the pricing, billing, payment, collection and claims-handling process is a great thing.
What’s not so great is the next stop after the intersection of collaboration and integration, and that’s collusion. Hospitals and hospital systems have been buying physician practices over the past two decades—the first wave in the early 1990s, the second since the passage of the Affordable Care Act in 2010. It’s one way to control the valuable raw materials in the health care production cycle: Patients. Rather than independent physician practices referring patients to any hospital, hospital-owned physician practices refer patients to their hospital employer. Research also has shown that hospital-owned physician practices raised their prices for the same services after they were acquired by hospitals.
Hospitals and hospital systems also have been diversifying into the health insurance business, again in two waves. The first was in the 1980s along with the HMO boom; now we’re seeing it again, as the industry transitions to value-based payment systems that reward providers for keeping patients and enrollees healthy and for treatment outcomes rather than the type and volume of treatments. For hospitals, that means losing their historical method of generating revenue. When they lose something, they need to replace it with something to stay in business, and that something is premium income from running a health plan.
So now you have one entity—the hospital or hospital system—controlling all three formerly competing and independent elements of the health care delivery and financing chain: Hospitals, doctors and insurers.
As the buyer of services from all three formerly competing and independent links in the health care delivery and financing chain, employers still are buying the same services, but now from one company that controls the means of production for all three.
My guess is hospital executives will argue that it’s more efficient to put all three under common control, with those efficiencies passed along to buyers in the form of lower prices or smaller price increases. My suspicion is employers that are attracted to one service because it’s cheaper will somehow pay more for the other two. It’s like pushing down on one side of the balloon. The air—and the cost—just shifts.
I also suspect that enrollees in provider-sponsored health plans will pay lower premiums, co-pays and deductibles if they use the plans’ own hospitals and doctors for care. What the plans lose on premiums, their hospital system owners will make up in volume. Enrollees who use non-plan providers will get hit with significantly higher premiums, co-pays and deductibles.
It’s just business. And employers that think otherwise will pay more for benefits than they thought.
David Burda twitter.com/@davidrburda, firstname.lastname@example.org) is editorial director, health care strategies, for MSP-C, where he serves as the chief health care content strategist and health care subject matter expert.