PRESS RELEASE: Experts Announce Strategies to Make Health Care Markets More Competitive, Regulate Prices

WASHINGTON, D.C.—A panel of national experts—ranging from hospital leaders, insurance and antitrust experts, economists and others—have, for the first time, created an agreed-upon set of principles to address the negative impact of increased market power in local health care markets, as well as a continuum of policies that government could take to remedy the issue of limited competition.
 
Market power—or the ability to raise and keep prices higher than would prevail in a competitive market—is a serious problem in many health care markets across the country and requires closer scrutiny from both state and federal policymakers, according to the findings of the panel convened by the nonprofit, nonpartisan National Academy of Social Insurance (NASI).

The panel, formed in June 2013 to examine the role and impact of market power in the U.S. health care system, released its findings today in a new report—Addressing Pricing Power in Health Care Markets: Principles and Policy Options to Strengthen and Shape Markets.

“Health care spending in the U.S. is nearly double that of similarly developed nations, and prices are an important factor in many local markets,” said Lee Goldberg, Vice President of Health Policy at the National Academy of Social Insurance. “When a local market is dominated by one or two health systems or insurers, prices increase; providers compete over everything but the two things consumers really care about: quality of care and price.”

Interested in the role of both providers and insurers in driving prices and spending on health care, the panel found more evidence of the former than the latter. Whether it was looking at claims data or payment rates, there is evidence that dominant hospitals and large physician group practices are able to negotiate prices that are often double or triple what Medicare pays for the same medical services. While the concentration of insurers may be high in most markets, the evidence that it drives prices up is not strong.

Among the findings, the report notes that introducing more competition into the marketplace is the best way to address the issue of market power, but concedes that introducing more competition may not be viable in some markets, which will instead require regulatory intervention.

To balance the differences in views and to assist policymakers starting to look at this issue, the study panel agreed upon four key principles to guide the development of policy options to address market power. Collectively, they reflect a preference for market competition solutions, but targeted regulation in areas lacking competition may also be needed. They include:

• Market competition is the best way to motivate providers to increase efficiency and improve the quality of care; where market competition is ineffective, public policy can enhance market competition or, if that is not likely to be successful, regulate prices directly.
• Greater transparency of the prices of health care services and the quality of care provided is needed to help consumers make better choices about their care.
• While payment and delivery system reforms may improve quality, they may also contribute to excessive provider consolidation within markets; before making exceptions for specific delivery and payment reforms in legislation, the costs and benefits of the new models should be fully evaluated.
• Variation in the price of services should reflect real differences in costs, organizational mission and consumer preferences, and not the leverage that insurers and providers have when negotiating, which may be unrelated to performance.

“There is a clear preference for market-driven solutions like more vigorous antitrust enforcement or barring certain anticompetitive contracting practices which will enable consumers to make choices that will drive down prices,” said William Hoagland, Senior Vice President at the Bipartisan Policy Center. “In addition to increased competition, we need to improve the transparency of provider costs and quality. Doing this will dramatically improve how much the U.S. spends on health care and enable Americans to be informed health care consumers.”

According to the panel and its findings, which policy or set of policies will be most effective will vary widely by market, as there is no ‘one size fits all’ approach. Because of this, the panel explored a continuum of options—ranging from those that could be considered pro-market (e.g., encouraging new providers to enter the market and greater price transparency) to those with greater regulatory constraints (e.g., limiting premium increases and setting limits on provider reimbursement rates).

“For too long, unreasonably high and widely varying hospital and physician prices have been the unacknowledged ‘elephant in the room’ in discussions about the ongoing challenge of excessive health care spending. Without more explicit attention to the problem, promising reforms like accountable care organizations could actually exacerbate pricing problems,” said Robert Berenson, MD, Institute Fellow at the Urban Institute. “Given the great variation in health care markets and underlying cultures of states and communities, there is no single, easy policy fix. The Academy report now provides a guide for policymakers and stakeholders to follow in finally confronting the pricing issue.”

The Academy study panel and report were funded by the Robert Wood Johnson Foundation, the California HealthCare Foundation and the Jayne Koskinas Ted Giovanis Foundation for Health and Policy. Download a PDF of the full report.