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Hearing on Health Care Industry Consolidation

September 09, 2011

Hearing on Health Care Industry Consolidation









September 9, 2011


Printed for the use of the Committee on Ways and Means



PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia

RON KIND, Wisconsin

JON TRAUB, Staff Director
JANICE MAYS, Minority Staff Director




Advisory of September 9, 2011 announcing the hearing


Martin Gaynor, PhD
Professor, H. John Heinz III School of Public Policy and Management, Carnegie Mellon University

Paul B. Ginsburg, PhD
President, Center for Studying Health System Change

Dianne Kiehl
Executive Director, Business Health Care Group

Michael Guarino
Member, Board of Directors, Ambulatory Surgery Center Association
David Balto
Senior Fellow, Center for American Progress Action Fund


Hearing on Health Care Industry Consolidation

Friday, September 9, 2011
  U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.

The subcommittee met, pursuant to call, at 9:34 a.m., in Room 1100, Longworth House Office Building, Honorable Wally Herger [chairman of the Subcommittee] presiding.

[The advisory of the hearing follows:]


Chairman Herger.  The subcommittee will come to order. 

Today we are going to hear from a panel of witnesses regarding consolidation in the health care industry.

Consolidation among hospitals, doctors, and insurance plans has occurred for some time.  I recognize that, at least in theory, consolidation can lead to greater efficiencies and improved outcomes.  Unfortunately, research has shown that higher prices are more often the result. 

Consolidation allows providers to command higher insurance payment rates.  As one official at an Ohio hospital that is seeking to merge with another hospital stated in an internal document obtained by the Federal Trade Commission, such a partnership would allow them to “stick it to employers, that is, to continue forcing high rates on employers and insurance companies.”  Research has repeatedly shown that after hospitals merge the prices they charge to those with private health insurance increase significantly.  Unfortunately, research has not shown that such consolidation leads to greater efficiencies or improved quality. 

In my own State, a 2010 report conducted by the Sacramento Bee concluded that one California hospital system’s large market share has allowed them to obtain “reimbursement rates with ‘markups’ more than double what it costs them to provide services.” 

Consolidation also enables providers to receive higher Medicare reimbursements by simply changing their designation on paper.  While this increases provider revenue, it results in higher costs for beneficiaries and an increased burden on taxpayers with no discernible community benefit. 

When hospitals purchase physician groups, hospitals are able to further increase revenue by controlling referral patterns and creating a situation in which they could pressure their physicians to perform more procedures.  Similarly, insurance plan consolidation leaves consumers with fewer coverage options and providers with fewer carriers paying claims. 

In many ways, the Democrats’ health care law has made a challenging situation worse as all signs point to the law leading to even greater consolidation as providers try to blunt the impact of the law’s one‑half trillion dollars in Medicare cuts and massive new regulations. 

Providers unable to absorb the cuts are prime candidates to be acquired by larger providers who can.  Large insurance plans that are able to comply with the new regulations are likely to buy smaller plans that cannot.  Providers teaming up in preparation for the ACO program are likely to be able to command higher private insurance rates whether or not their ACO is successful.

Who ultimately pays higher prices associated with consolidation?  It is not the insurance companies.  They pass it along to employers by way of higher premiums and employers pass it on to their workers by way of reduced wages, higher costs, and benefit cuts.  At a time of elevated unemployment, Congress must ensure that it is doing all it can to foster a more competitive environment that promotes growth, not one that adds additional cost burdens and “sticks it to employers” and, by extension, to their employees. 

This hearing will shed light on the important and under‑examined issue of consolidation and its implications for health care consumers. 

Before I recognize Ranking Member Stark for the purposes of an opening statement, I ask unanimous consent that all members’ written statements be included in the record. 

Without objection, so ordered. 

I now recognize Ranking Member Stark for 5 minutes for the purpose of his opening statement.

Mr. Stark.  Thank you, Chairman Herger, for calling this hearing.  It is difficult to take on a topic of this breadth with a single panel on a Friday morning, but we can work together, I am sure, to fashion more targeted hearings in the future. 

The questions of whether provider consolidation helps to improve the clinical integration of care, how it is balanced against the desire not to create provider giants that can become virtual price setters, the issue of pharmaceutical benefit manager consolidation is also timely, and there is growing examples of new mergers that warrant review. 

I think we will hear from our witnesses today a mixed story.  Consolidation may indeed be a core strategy in achieving our shared goal of increased integration, but the health care delivery systems that are lauded by Members on both sides of the aisle for their efficiency are ones that are integrated and consolidated. 

So we recognize that consolidation could lead to market imbalances and have got to be balanced by a regulatory role that ensures that consumers are protected. 

We know that common perceptions about each of our parties ‑‑ you Republicans are seen as the party that defends the marketplace and the power of competition and we Democrats are perceived as the party that puts regulation ahead of competition.  Perhaps what we see today is that these perceptions can be wrong, and the majority raises concerns about competition and how it may result in outcomes that are bad for consumers. 

So I look forward to seeing what we can develop today and whether this will lead to future hearings on this topic. 

Thank you very much. 

Chairman Herger.  Thank you. 

Today, we are joined by five witnesses who will discuss the effects of consolidation in the health care industry from overall health care spending to the impacts at the local level. 

Our witnesses in the order they will testify are Martin Gaynor, E.J. Barone Professor of Economics and Public Policy, Carnegie Mellon University; Paul Ginsburg, President, Center for Studying Health System Change; Diane Kiehl, Executive Director, Business Health Care Group; Michael Guarino, Board Member, Ambulatory Surgery Center Association; and David Balto, Senior Fellow, Center for American Progress. 

You will each be recognized for 5 minutes. 

Mr. Gaynor, if you would kick things off.

Mr. Gaynor.  Thank you very much, chairman and committee members, for giving me the opportunity to address you on this very important topic. 

Health care, as we all know, is a very large and very important industry.  There has been a tremendous amount of consolidation in this industry, and this represents a serious problem. 

Let me talk about consolidation.  I will start with hospitals.  We know a great deal about consolidation among hospitals.  Most hospital markets in the U.S. are now highly concentrated markets, meaning that market shares are concentrated in the hands of a very small number of hospital firms. 

With regard to physician services markets, we don’t have nearly as much information.  There is some information to indicate that some practices have been growing in size and some information from California that shows very highly concentrated physician practice markets. 

For health insurance markets, we do have more information than we have for physician markets, although not as much and not as good information as for hospital markets.  Some recent data show that the large employer health insurance market has grown concentrated over time and became highly concentrated about 2004.  The report of a couple of years by the General Accounting Office for the small group market also showed some evidence from recent years that that market is highly concentrated.

With regard to integration between different kinds of providers, what I am calling here vertical consolidation, for example, physicians and hospitals, the evidence is that those forms of integration between doctors and hospitals peaked in the mid‑1990s and fall steadily thereafter, with the exception of employment of physicians by hospitals which has increased steadily over time. 

Now, what are the effects of all of this consolidation?  Because this is what we care about after all. 

For hospitals, the evidence on prices is very clear.  Prices are higher in more concentrated markets.  Consolidation leads to price increases, in some cases price increases that are well over 50 percent. 

The evidence on quality is as follows.  The markets with regulated prices, Medicare, for example, the evidence is that competition enhances quality and vice versa.  Consolidation harms quality.  For markets where the prices determine the market for the privately insured, the evidence is all over the map.  I don’t think there is any firm conclusion that can be drawn from those markets.

Cost savings are possible from hospital mergers if the two hospitals really truly do become fully integrated, although the evidence I just cited with regard to prices being passed on to consumers doesn’t support the fact that any cost savings actually end up in the hands of consumers.

Now, who pays for this?  Well, as health care prices go up, insurers don’t end up paying for it.  Employers don’t end up paying for it.  The evidence is that if there are costs in health benefits for employers, those increased costs get passed on to workers in the form of lower total compensation.

For physicians, we don’t actually have much evidence on consolidation and competition in the markets.  There is some evidence that the prices do go up in the absence of competition. 

For insurance markets there is more evidence, evidence that premiums are higher in more concentrated markets for large employers specifically.  There is some recent work that shows substantial market power in the Medigap, the supplemental insurance market for Medicare beneficiaries, and there is some older research that shows evidence that competition has a large effect on premiums in the Medicare+Choice market, the predecessor of Medicare Advantage. 

For integration between physicians and hospitals, there is not much evidence.  There are two studies I know of, and they have exactly opposite results.  So I don’t think we can draw a firm conclusion about impacts on price. 

There has been much more work about the impacts of integration, particularly physician hospital organizations, on costs and quality, access, et cetera, and that work turns up little evidence that integration has an impact, that integration at that point in time.

Let me now briefly talk about policy options in this industry.  The first and most obvious is vigorous antitrust enforcement that can occur over a number of domains.  Now, many of these markets are already highly concentrated, so there does have to be some concern about exactly how effective antitrust enforcement can be, although it is important to realize that strong and vigorous enforcement can have effects far beyond the actual cases that are prosecuted because they can have a chilling factor on possible anti‑competitive conduct by other kinds of firms.

One thing that is very important is considering safe harbors.  The Federal Trade Commission and the Department of Justice have gone to great lengths to establish safe harbors for kinds of integration they think could be efficiency enhancing that extends to the accountable care organizations.  That is important, but it is also important not to allow integrations that are sham or integrations that foreclose the possibility of competition in the future. 

In support of that, policies that facilitate the entry of firms in innovation in organizations technology are very important, making sure that it is possible to do that, set policies on the demand side, such as facilitating selective contracting.  Making sure that consumers have information that is not only good but they can actually understand and use is very important.

And, last, rate regulation is certainly a policy option as well.  As the market becomes too concentrated for other policies to be effective, then rate regulation is a policy option that can be considered.

Thank you.

[The statement of Mr. Gaynor follows:]

Chairman Herger.  Thank you. 

Mr. Ginsburg is recognized for 5 minutes.

Mr. Ginsburg.  Thank you, Mr. Chairman, Congressman Stark, and members of the subcommittee.  I am delighted to be able to testify before you today. 

I and my colleagues at the Center for Studying Health System Change have been conducting research on leverage between health care providers and private insurers for some time.  Much of my testimony is based on the community tracking study site visits which we have conducted in 12 representative metropolitan areas since 1996. 

There is a striking difference between the period of the early and mid‑1990s and the present time.  In the 1990s, health plans were able to pressure providers to accept lower payment rates and assume financial risk for patient care.  It was a time of rapid growth of managed care enrollment, and employers supported relatively restrictive provider networks.  Excess provider capacity existed in many markets and there was relatively limited provider consolidation, although extensive merger activity was getting under way, prompted partly by plan leverage.  Many of these mergers were challenged unsuccessfully by the Federal Trade Commission.  Premium increases were very small.  In fact, they got close to zero in the mid‑1990s. 

Contrast with the present time we see substantial provider leverage, and higher prices have been a more important driver of spending trends recently than volume growth.  We see a pattern of very extensive variation in prices paid by private insurance as a percentage of Medicare rates both by market and by providers within the market.  Some hospital rates are four times Medicare payment rates. 

What has changed?  Well, part of the story is increased provider consolidation, both through mergers and also by attrition of weaker providers.  But the managed care backlash of the mid 1990s led to demands for broad provider networks, and employers have not backed plans in showdowns with providers over payment rates. 

Now, we have the notion of must‑have providers.  Providers who have a reputation for quality, who have a geographic niche or a very large part of the market are able to get much higher rates from insurers because of the inability of insurers to exclude them from networks.

I want to say a few things about this recent development of hospital employment of physicians. 

This has developed very rapidly.  In some communities, a large majority of physicians are employed by hospitals.  Some have perceived this as a step to prepare for delivery reform, accountable care organizations, and bundled payments, but the trend toward hospital employment started before the name “ACO” was even coined. 

My perception is that this employment is predominantly to garner more patient referrals, expand hospital specialty service lines, and increase provider market power.  This is a highly attractive strategy today under volume‑driven, fee‑for‑service financing.  It is also a potential asset for integration, but, to do that, hospitals would need to rework the compensation incentives to focus on volume. 

Hospital employment of physicians is causing rising prices because hospitals can negotiate higher payment rates for physicians than small physician practices can, and the differences are very large.  It may even permit higher prices for hospital services.  Also, there is an impact on Medicare and its beneficiaries and the facility charges that begin when physicians become parts of hospital outpatient departments. 

Now, there are both markets and regulatory approaches to address provider leverage.  The market forces work by engaging enrollees in selecting providers on the basis of price and quality.  Some employers have adopted benefit designs to do this, and some evidence is that the poor economy has contributed to this increasing interest.  But provider ability to resist the tiered designs by refusing to contract is a serious barrier. 

There are things that government can do to support market approaches.  One is the development of methods for measuring value that will be credible to both providers and to consumers.  Also, government can limit provider contracting practices that interfere with cost‑conscious choices by enrollees.  Changing the tax treatment of health employee benefits is another option. 

There is a major question about how effective market approaches can be because some markets are already too concentrated, and consumers did not react well to some of these approaches in the mid-1990s, and we need to know how they will react to better‑conceived approaches today. 

If market forces do not work, regulation should be considered.  It could come in the form of rate review or rate setting by a public entity, most likely at the State level, and it could take a loose form like a limits or a review trigger by high rates in relation to Medicare or it can be a much more structured system.  The key is to designing such interventions so that they foster or accommodate payment reform for innovations. 

Thank you very much.

[The statement of Mr. Ginsburg follows:]

Chairman Herger.  Thank you.

Ms. Dianne Kiehl is now recognized for 5 minutes.

Ms. Kiehl.  Good morning and thank you, Chairman Herger, Ranking Member Stark, and committee members, for the invitation to speak to you today.

I am here representing the Business Health Care Group of southeastern Wisconsin serving as their executive director since 2004.  We are a progressive and very active employer‑based health care coalition.  We represent over 1,200 employers, including Fortune 500 companies. 

I have submitted my full statement to the committee which I ask be made part of the hearing record.  I encourage you to review my written testimony for details about my organization’s efforts and other health care initiatives in our State, as well as a thorough explanation of provider consolidation in our market.

I have spent 41 years in the health care field both as clinician ‑‑ I am a registered nurse and clinical lab technologist ‑‑ and as an executive and business owner assisting employers in managing health care costs.  I also serve on numerous health care organizations’ boards of directors, as well as various steering committees dedicated to payment reform and delivery reform.

When I started my health care career many years ago, health care was available based on community need, which minimized costly infrastructure.  I am sure many of you remember a time when hospitals specialized in specific high‑cost services, and we had a virtual center of excellence care delivery model.  As we are all aware, things are very different today.  With the current reality of extensive vertical integration of health care providers, most services are duplicated at every system in our region.  The emphasis is now on keeping the patient in the system’s revenue stream and controlling processes. 

In my written testimony, I mention that our remaining 21 full‑service hospitals have consolidated into six systems in our six major counties, but I would like to clarify that no county has six.  Two counties have four; the others only have two. 

A more serious consequence of consolidation is that doctors report that they are now being expected to meet revenue targets or jeopardize their jobs.  Physicians are key to cost control.  They need to determine the standards of care and quality metrics regardless of financial implications to the system that employs them. 

First and foremost, I am here to testify our costs is what caused our founding CEOs to form our group, but the continued consolidation is what keeps us going and growing.  We believe hospital consolidation will continue and physician consolidation is ongoing.  We have seen that consolidation has decreased competition, added excess infrastructure, decreased physician autonomy, contributed to our costs, and decreased consumer choice.  Detailed information corroborating our position on the effects of provider consolidation can be found in my written testimony.

The most critical point I would like to make is that provider consolidation has increased provider leverage at the negotiating table, including contractual language that limits what employers can do and still access competitive rates.  For instance, we are not able to provide incentives to direct patients based on cost and/or quality.  Additionally, there are significant limits on quality and price transparency, which is a must‑have for true health care reform.  To allow transparency to work for consumers, providers must be forced to publicly report their contracted rates and all quality measures. 

The final point I would like to make is that we do need to provide care efficiently and effectively in a patient‑centered model where patients get care according to established appropriateness and by the right provider.  Integrated or what once was called coordinated care is the goal, but it does not necessitate consolidation. 

We are expecting more consolidation as providers get ready for health care reform and form accountable care organizations.  Physicians want to keep their autonomy but feel they have no choice.  The fear of the unknown is driving defensive behavior.  The race is on to lock up market share. 

In summary, as employers, our ability to control our costs is significantly compromised by the provider leverage and control achieved through consolidation.  Employers’ choices to reduce coverage or workforce are not good choices. 

Lastly, we believe in the promise of patient‑centered care with full price and quality transparency, physician autonomy and leadership, payment reform, and consumer choice to reform our Nation’s ailing health care system.

Chairman Herger, Ranking Member Stark, I would like to thank both of you and the committee for your time and the opportunity to have an employer‑based person share their testimony on this very important topic.  It is indeed an honor to share my thoughts and experience with all of you.  I look forward to your questions and comments.

[The statement of Ms. Kiehl follows:]

Chairman Herger.  Thank you. 

Mr. Guarino is now recognized for 5 minutes.

Mr. Guarino.  Chairman Herger and Ranking Member Stark, thank you for inviting me to testify on health care consolidation. 

My name is Michael Guarino, and I live in Weeki Wachee, Florida.  I manage the operations of five ambulatory surgery centers, better known as ASCs, in New York and Florida.  I am testifying on behalf of the Ambulatory Surgery Center Association for which I serve as a board member. 

I have worked for more than 15 years in the management of ACSs and physician practices, and I manage both single‑ and multi‑specialty centers.  I commend you for convening this hearing to explore the impact of consolidation in the health care industry, as I believe this phenomenon has increased recently and may raise overall health care costs. 

In theory, consolidation may bring efficiencies to the market by reducing excess capacity and duplication.  However, I have seen firsthand that consolidation can also be anti‑competitive and may result in virtual monopolies in certain markets where patients are funneled into higher cost settings. 

Surgery centers are health care facilities that specialize in providing essential surgical and preventative services in the outpatient settings.  Surgery centers have transformed the outpatient experience by offering a convenient, personalized, lower price alternative to hospitals.  With approximately 5,300 Medicare‑certified facilities, surgery centers perform more than 25 million procedures each year, which constitutes nearly 40 percent of all outpatient surgeries nationwide. 

As you may know, on average, Medicare now pays surgery centers about 56 percent of the hospital outpatient department payment rate for providing identical services.  For instance, a hospital receives almost $2,000 reimbursement when a knee scope procedure is performed, while a surgery center only receives nearly $1,200 for the same service.  This means surgery centers are an enormous source of savings to the Medicare program, cutting costs for the program by approximately $2.5 billion a year. 

We stand ready to work with Congress to reduce Medicare outpatient surgery costs even further.  For example, if just 50 percent of the cases performed in a hospital setting that are eligible to be performed in a surgery center were moved to the surgery center, Medicare would save an additional $20 billion over 10 years. 

But there is a flip side to this growing disparity in the payment that surgery centers and hospitals receive.  Just 8 years ago, surgery centers were paid 86 percent of the hospital rate.  As that rate has slipped to 56 percent, there is now a growing payment incentive to treat these patients in the hospital.  Indeed, we are now starting to see a number of hospitals acquiring surgery centers and converting them into HOPD.  A recent analysis conducted by our Association found that of 179 surgery center closures since 2009, about one‑third were purchased by hospitals.  The result is that Medicare will pay substantially more for its beneficiaries to receive identical services. 

My own experience may also be illuminating.  I have been approached by a hospital or hospital system to sell my surgery centers in every market in which I operate.  One hospital system presented an economic analysis showing that one surgery center could increase its annual revenue by over $4 million simply by allowing the hospital to acquire the surgery center.  This revenue increase would occur only because we would be paid more by Medicare and commercial insurance for the exact same cases. 

In another market, the vice president of operations of a major health care system suggested that I either allow them to purchase my single specialty surgery center or watch as my surgery center became worthless when the not‑for‑profit hospital system became an accountable care organization. 

In my New York market, all three hospital systems have contacted me about acquiring the outpatient surgery center.  In addition, virtually all my referring doctors were approached by a hospital system to enter into a management agreement that effectively prohibits physicians from referring cases to any facility not affiliated with their hospital system. 

What would be the impact on Medicare when this acquisitions occur?  The answer is that the beneficiaries will pay substantially higher copays for the outpatient surgical procedure.  For example, a beneficiary’s copayment for cataracts would soar from a little less than $200 to well ‑‑ if she received the procedure at a surgery center ‑‑ to nearly $500 for the exact same service instead provided at a hospital.  Similarly, the price Medicare would pay for a colonoscopy and biopsy would nearly double from $370 to $647. 

What should be done about this phenomenon?  Congress has the obligation to ensure the proper incentives to provide high‑quality care at the most economical price. 

Among the key areas that should be addressed: implement transparent quality and cost‑sharing reporting across settings to better inform patients about their treatment options; ensure that ASC payment updates keep pace with the updates from the same services provided in hospitals; surgery centers and hospitals confront the same inflationary challenges of hiring and retaining nursing and purchasing medical supplies; provide vigorous oversight of accountable care organizations to ensure they do not hinder competition and lead to higher costs. 

Once again, thank you for inviting me to participate in this hearing.

[The statement of Mr. Guarino follows:]

Chairman Herger.  Thank you. 

Mr. Balto is now recognized for 5 minutes.

Mr. Balto.  Thank you, Chairman Herger, Ranking Member Stark, and the rest of the committee.

I am David Balto, a Senior Fellow at the Center for American Progress.  My testimony today is based on over 15 years as a government antitrust enforcer at the FTC and the Department of Justice and my experience as a public interest lawyer representing consumers and other groups.

I have a simple message for you today.  I applaud you for holding this hearing.  Concentration in any market is certainly problematic, definitely in health care markets, and antitrust enforcement plays an important tool here. 

Let’s start off with health insurance.  Unfortunately, because of a complete lack of health insurance antitrust enforcement, almost all health insurance markets in the United States are highly concentrated.  You know the results of that ‑‑ you heard about it in the last congressional session ‑‑ skyrocketing premiums, consumers harmed by egregious and deceptive conduct by health insurance companies.  Fortunately, Congress has enacted the Affordable Care Act which gives us tools to go and help to deal with some of these problems.  I know not all of you voted for it, but watch and see.  I think it is going to be effective in grappling with many of these problems.

Fortunately, the new antitrust enforcers at the Department of Justice have set a line in the sand and simply said no more consolidation when it comes to health insurance, and they have gone after anti‑competitive practices that stop markets from performing effectively, and that is really important. 

Now, an area where the antitrust enforcers have been asleep at the switch are pharmacy benefit managers which play a crucial role in managing drug benefits.  Two of the three of them now plan to merge, Medco and Express Scripts.  They will have over 50 percent of the large plan market.  They will have over 150 million covered lives.  They will be phenomenally larger than anybody else. 

And I should have said right at the beginning, I represent consumer groups, unions, and specialty pharmacies in advocating against this merger before the FTC. 

This merger will significantly increase the cost of the specialty drugs.  For the millions of vulnerable consumers who need specialty drugs, it will deny them the choice they need because these two firms control the two largest specialty pharmacies in the United States. 

Hey, this hearing is about providers with too much market power.  Go back to your districts.  Go look at your community pharmacist.  Look him in the eye and you tell me does he have market power.  Community pharmacists are the life bone to our drug delivery system.  They are there advising patients, helping them deal with their drug benefits, delivering high‑quality care.  They don’t have any market power, but these PBM mergers threaten to drive them out of business by forcing consumers to mail order, which is more expensive and leads to less care. 

Finally, for you as members of the Ways and Means Committee, this PBM merger is important.  Government programs such as TRICARE, Medicare Part D, and FEHPB rely on these PBMs.  You are going to have only two choices at the end of the day. 

Let’s turn to the issue of hospital consolidation, which is a big part of this discussion here.  There is no doubt that there are economic studies that suggest that these mergers lead to higher costs, but there is a tremendous need for hospital consolidation.  There is no doubt that there is overcapacity.  There is no doubt that there is a need for certain types of consolidation.  Fortunately, antitrust enforcement has been ramped up in this area.  The FTC has brought some significant cases and, also, the Department of Justice has gone after anti‑competitive practices that prevent other hospitals from being able to effectively compete.  The combination of both active antitrust enforcement and greater regulation offers a promise here. 

Now, I agree with the other panelists about what the solutions are here.  Besides antitrust enforcement, we have to look for market mechanisms to make the market work.  Is there adequate transparency so employers get the right price signals, so consumers get the right price signals, so consumers are choosing the health care that is lowest cost and leads to the best quality?  We have got to make sure that there is nothing that prevents that.

And important here could be the possible role of the FTC in helping to go and educate the market to make sure that there is adequate transparency but, also, when there are problems such as the referral power that was mentioned earlier, where you have a group of providers with referral power, the FTC can go after that kind of conduct under section 5 of the FTC Act.

Finally, if there is a concern about the impact of ACOs, let me make one suggestion to my friends at the FTC and the DOJ.  People are concerned that the ACOs will be controlled by dominant hospitals.  That is a legitimate concern.  It is time for the FTC and DOJ to adjust the antitrust standards so doctors can get together and form ACOs that are competitive to the ACOs that are controlled by the hospitals.  Unfortunately, the standards the FTC and DOJ have been applying are too strict in this area. 

My testimony ends with several other suggestions for revitalized antitrust enforcement, and I appreciate the opportunity to appear before you today.

[The statement of Mr. Balto follows:]

Chairman Herger.  Thank you. 

Mr. Gaynor, research indicates that provider consolidation results in higher prices.  Who ultimately ends up paying these prices? 

Mr. Gaynor.  Thanks for the question. 

The folks that ultimately end up paying for that are folks who have employer‑provided health insurance.  There is a lot of research evidence that shows that if health benefit costs for employers go up, those costs get passed on to workers, either in the form of lower pay or pay increases that are lower than they would otherwise have gotten, greater cost sharing for health insurance, or reduced benefits for health insurance, including, in some cases, elimination of the provision of health insurance entirely.

Chairman Herger. Generally speaking, does consolidation result in improved quality of care or increased efficiency?  And please explain.

Mr. Ginsburg.  Consolidation has the potential to do these things, but I think Dr. Gaynor had mentioned the literature ‑‑ and I don’t want to paraphrase him wrong ‑‑ but I think there is no evidence of a consistent pattern; is that correct? 

Mr. Gaynor.  Yeah.  For hospitals, again, if a consolidation is actually real, there is real integration, it will keep operating. Say two large orthopedic or oncological centers they consolidate, there can be real cost savings, but the evidence is that prices go up when there is consolidation.  So if cost savings are realized those are not being passed on to consumers.

The only other evidence that I know we have on consolidation comes from some hospital organizations during the 1990s, and that does not provide evidence of substantial efficiency gains from that kind of integration at that time.  Doesn’t improve quality, either.

Chairman Herger.  Thank you. 

Mr. Guarino, the difference in Medicare payment for the same procedure when it is done in an ambulatory surgical center versus a hospital outpatient department is striking.  Can you walk through an example for a specific procedure so that we are clear on the discrepancy and the cost implication for beneficiaries and the taxpayers who largely fund the Medicare program? 

Mr. Guarino.  Yes, Mr. Chairman. 

On a knee scope, the hospital would receive $2,042, where a surgery center would receive $1,167 for the exact same procedure, and then there would be ‑‑ the copay would be based on the dollar amount that the hospital would have charged, the higher amount.

Chairman Herger.  Thank you. 

Mr. Stark is recognized.

Mr. Stark.  Thank you, Mr. Chairman. 

As I listen to the witnesses today, it becomes clear to me that Medicare has an advantage in the marketplace because it is a national program and pays defined rates.  It doesn’t run into negative consequences of consolidation the way that consumers in the private health care system may.  I would ask Dr. Ginsburg and Mr. Balto if that doesn’t suggest that a Medicare‑for‑all or an all‑payer system might be the best answer for our health care system in the future.  It seems to me that with that system we get the advantages of integration, increased efficiency, quality, and reduced waste, without having to worry about price consequences in local communities. 

I don’t know if you gentlemen would like to comment on that.

Mr. Ginsburg.  There certainly are pros and cons of Medicare‑for‑all or rate setting, but I would say that, one of the pros for both is the ability to prevent consolidation from leading to much higher prices paid by the purchasers of medical care.  It can be achieved through a broader Medicare program or, alternatively, in a private insurance system, it can be achieved through a rate‑setting mechanism.

Mr. Balto.  And I agree with Dr. Ginsburg.  I think, you know, a powerful buyer like Medicare can really drive efficiency in the system and you see much greater efficiencies in the Medicare system.

Mr. Stark.  Thank you. 

Thank you, Mr. Chairman.

Chairman Herger.  Thank you. 

Mr. Reichert is recognized for 5 minutes.

Mr. Reichert.  Thank you, Mr. Chairman; and thank you all for being here today. 

I have just a real quick question for Mr. Gaynor.  In your slide presentation, one of the bullet points states that there is evidence of substantial market power in the Medigap market.  What do you attribute the reason for that? 

Mr. Gaynor.  Thanks for the question. 

I should clarify in a couple of ways. 

One, this is a recent study ‑‑ or, actually, there is a couple of recent studies, so there is not a huge evidence base on this, but the evidence that is out there does point in that direction, one. 

Two, there are a small number ‑‑ or I should say, rather, that market is dominated by a couple of large insurers, and that is probably the reason for that.

Mr. Reichert.  What is the impact on Medicare Advantage then?  Is part of the increase to the Medigap market the cuts to Medicare Advantage, seniors maybe moving to that market, or is it just because we have these two large organizations that have consolidated? 

Mr. Gaynor.  Yeah.  I think that the main impact is because the Medigap market is dominated by two large insurers offering the product.  There may be spillover effects onto Medicare Advantage, for that matter, traditional Medicare as well, but there isn’t any research evidence on that directly.

Mr. Reichert.  AARP’s role in advertising have anything to do ‑‑

Mr. Gaynor.  It could, it could, but I am not ‑‑

Mr. Reichert.  Their special label might have some impact there, you think? 

Mr. Gaynor.  Well, I don’t have specific knowledge about that, but the evidence that I am referring to did say that brand name had a lot to do with that, without referring specifically to AARP, to be clear.

Mr. Reichert.  Yes, sir.  So this is a question for the entire panel, specifically to the dialysis industry and their consolidation.  There is enormous consolidation taking place in that venue.  For the past decade that has been happening, and there has been a recent acquisition, as you know, in this past week.  Just two extremely large for‑profit dialysis companies provide care to over now 65 percent of everyone in this country who require dialysis to stay alive.  What impact is that going to have in that specific market on the choices, the price that people will pay, the access that people will have ‑‑ won’t it have the effect of eliminating those smaller neighborhood dialysis centers where people would have maybe better access to ‑‑ what is the impact on these large consolidations in the dialysis arena? 

Mr. Balto.  Congressman Reichert, you are right.  This week the Federal Trade Commission acted in the DaVita matter requiring divestiture of I believe 29 centers which the FTC, based on its investigation, believes is going to be sufficient to alleviate the competitive concerns raised by the merger.  They looked specifically at a wide variety of geographic markets and in markets that they believed were very concentrated required the divestiture.  I am not sure that the FTC’s action is adequate.  The FTC action leaves very few national players in the market, but their focus was primarily on just these 29 individual markets.

Mr. Reichert.  Any other comments? 

How about home dialysis?  Any impact on that that you would see, Mr. Balto, or anyone else on the panel? 

Mr. Balto.  No.

Mr. Reichert.  No? 

Mr. Ginsburg, can you talk a little bit about why a hospital might want to purchase a local physician practice?  I know you touched on this a little bit, but could you go through some of the reasons why that might happen again, please.

Mr. Ginsburg.  Sure.  One of the points that I made ‑‑ and we published a study about two weeks ago on this ‑‑ is that even though in theory preparing for integration, accountable care organizations, employing physicians would be helpful, but I believe that much of the current activity is motivated by opportunities in the current fee‑for‑service system.  And, basically, hospital strategies in recent years have been to identify fairly profitable service lines; and sometimes to expand a service line by going and recruiting physicians, prominent physicians.  Hospitals are always battling each other over market share, and employing physicians is a way to get market share from one’s competitors. Those are the key drivers.

Mr. Reichert.  Thank you, Mr. Chairman.  My time is expired.

Chairman Herger.  Mr. Kind is recognized for 5 minutes.

Mr. Kind.  Thank you, Mr. Chairman.  Thank you for holding this very important hearing. 

I want to thank the witnesses for your testimony today, especially welcome Ms. Kiehl from my home in State in Wisconsin, very fascinating testimony.  What is even more amazing is the results you have been able to achieve with the group that has been formed, the consolidation of the employers. 

If I read your testimony correct, you went from moving the insurance rates for your employers from 39 percent above the Midwest average in 2003 to 6 percent below the Midwest average by 2009, which is an amazing transformation; and it seems to me that what you have been able to achieve there through this collaboration of employers is a model we ought to be looking at nationwide.  Yet it doesn’t seem to be catching on in other areas.  Why is that?  Why aren’t we spreading this model out so other employers can take advantage of what you have been able to establish? 

Ms. Kiehl.  Well, let me just clarify.  We didn’t do that single‑handedly.  We definitely contributed to the market.  We were a force in the market.  We do get credit for what we did in the market, but there is a lot of activity going on in Wisconsin, as you probably well know, Representative Kind. 

Mr. Kind.  Yeah.

Ms. Kiehl.  So we were definitely a force, especially in southeastern Wisconsin, which is heavily populated.

The reason why it is hard to roll this approach out around the country is that you have to think about it from an employer’s perspective.  Let me explain the difficulty that we run into when we try to add more employers to our group. I can tell you I spend many hours in bed at night wondering why doesn’t every employer in our market join our group.  That would make it really good, and we could really deliver much better results.  But the dilemma is that employers are multi‑State, obviously global even.  So they look at their plan designs and they look at their networks and they look at who serves them best across the country. 

We have a very unique model because we did not want to duplicate the infrastructure related to contracting with providers.  We chose a strategy of having one sole administrator.  So the dilemma is a lot of employers want one administrator and maybe the one we chose is not the one that works for them across the country.  They need to change that focus of thinking that health care can be handled across a broad geographic area, and they need to look at what do they need to do in each market to control health care costs because then they would join our group and we would have more impact.

Mr. Kind.  Let me ask you ‑‑ because my time is limited and I know my colleagues get tired of me talking or bragging about what is going on in Wisconsin, but there are a lot of unique things that we should be talking about to take nationwide.  The Wisconsin Collaborative Health Care Quality that you referenced in your testimony, this was voluntary collaboration of health care providers joining forces in order to establish quality measurements to determine what works, what best practices protocols of care that they are sharing amongst each other.  The Wisconsin Health Information Organization, the ability for public‑private partnership to collect the data for greater transparency in the marketplace, too, things that I think virtually all of you were touching upon.

But as we go forward with this supercommittee over the next couple of months looking for long‑term deficit reduction to deal with the structural problem that we are facing, obviously health care costs is the major item.  If we don’t get a grip on the rising health care costs, virtually anything else we do really isn’t going to matter. 

So there are three options the way I see it that we face.  We can either go after the providers, asking for deeper cuts, and even though there are some already in the Affordable Care Act, more would be asked to start shifting costs to the beneficiaries and given the state of beneficiaries today that is not a very pleasant option, or we can change the way we pay for health care in this country.  And that is something that is being worked on right now under the Affordable Care Act, changing the fee‑for‑service system to a fee‑for‑value or a quality‑based reimbursement system.

How important do you think that will be as far as the overall health care system is changing how we pay for health care in this country and getting away from these volume payments to payments based on results, quality, or value?  Ms. Kiehl? 

Ms. Kiehl.  Well, I actually think it is very important, but it is also very difficult.  You are trying to change history of how claims and how services have been paid for, and the administrators or the carriers across the country, they have mega systems of IT that is not going to be able to turn on a dime.  So it is going to take a long time I think to do this in an efficient way. 

Administrators and providers can handhold certain payment reform projects.  We are doing some projects in Wisconsin, and we will get collaboration from some providers and administrators to be able to pilot some of these projects.  But it will slow down the throughput on auto adjudication.  It will take some time to automate these new payment approaches.

Mr. Kind.  I think a hearing on consolidation, the impact that is having on prices is fine, but unless we get a grip on the ultimate payment system, the incentives that are built in, encouraging more volume rather than to focus on value or outcomes, we are going to be spinning our wheels.  And you are right.  We are not going to change the way we pay for one‑fifth of the entire U.S. economy overnight.  It is going to require a transition period.  I think that needs to be the ultimate goal.

Thank you, Mr. Chairman. 

Chairman Herger.  Thank you. 

Gentleman from Georgia, Mr. Price, is recognized for 5 minutes.

Mr. Price.  Thank you, Mr. Chairman.  I want to commend you for holding this hearing. 

I want to thank the witnesses. 

The costs in health care are a concern for all.  I would respectfully suggest that the major fundamental change that has occurred in health care over the past 2 years has been the bill that was passed by Congress that really does nothing to address the costs in health care, with the exception of the ability of the Federal Government to deny care to recipients. 

There is significant evidence that the market is so distorted I believe by rules and regulations from the Federal Government that we are not even talking about market forces anymore.  All that I heard from the four to the left here are all the defensive activities that are going on in the market to just try to navigate the system, and what is lost in all of that is the patient, and we have had some allusions to quality care but most of this is talking about cost. 

Mr. Gaynor, in your presentation, there is a little line in there that says that regulated prices, especially in the Medicare system, that the consolidation in this area reduces quality of care.  Would you expand briefly on that, please? 

Mr. Gaynor.  Sure, of course. 

So the evidence is as follows:  There have been a number of studies in this area.  The most prominent one looked at impacts on mortality for Medicare beneficiaries who are suffering from heart attacks, and what they found is that mortality rates were substantially higher for Medicare beneficiaries who had heart attacks who obtained care in the most concentrated hospital markets.  Indeed, the mortality rate was on average one and a half percentage points higher for these heart attack patients if they were treated at a hospital in a highly concentrated market as opposed to a hospital in a less concentrated market.

So price is not an issue here.  Obviously, prices are set by fiat, but quality of care is something that is still an issue. 

I also can mention some research I have done recently with some colleagues in the U.K.  The British National Health Service recently moved to a system where they tried to encourage competition among hospitals and used regulated prices like our Medicare prices, and our evidence is very much like the evidence from the U.S.

Mr. Gaynor.  We find that patients do better when they are served by hospitals that are in less concentrated markets as opposed to more concentrated markets.

Mr. Price.  And I think this really is the major issue.  As a physician, I can tell you that the patients are concerned about costs, yes, but they are concerned about quality.  And the physicians in this country are concerned about quality, and they believe, many of them, that the quality that they are able to provide is being limited by the rules that are coming out of Washington. 

Mr. Guarino, I want to discuss, the evidence is pretty clear that ASCs, ambulatory surgery centers, many of which are physician‑owned ‑‑ provide higher quality care at lower costs.  And yet the bill that was recently passed limits the number of physician‑owned hospitals ‑‑ and ASCs fall under this ‑‑ to any expansion at all.  What is going on?

Mr. Guarino.  I think that is a better question for you guys.

Mr. Price.  Why do you think anybody would come up with a public policy that wants to do away with facilities that provide higher quality at lower costs?  What is the rationale there? 

Mr. Guarino.  You possibly could look at the marketplace, what is being driven in the marketplace regarding with the ‑‑ who we are in competition with.  I know there has been concerns regarding physician ownership in surgery centers like you have said in the past, but it has been proven patient satisfactions are higher, quality, and the savings to the system. 

Mr. Price.  So an ideal public policy then for decision makers here ought to be to expand the kind of facilities that you are representing here, as opposed to limit them.  Would that be an appropriate statement? 

Mr. Guarino.  Yes, it would be.

Mr. Price.  I want to touch, Mr. Balto, on the comments that you made about antitrust reform for physicians.  Noneconomically aligned physicians out there, the mom and pops, the smaller practices have been at the mercy of larger entities, whether it is insurance companies or the government or other provider entities that are much larger.  And I think I heard you say that you supported, you encourage the administration to support anti‑trust relief for those physicians so that noneconomically aligned physicians could pool together and negotiate with hospitals, insurance companies, and others, is that correct? 

Mr. Balto.  Yes, I strongly support that.  I testified to that in other contexts.  That was actually legislation proposed by former Republican Congressman Tom Campbell, and I think it is something physicians really need to create a balance and better protect the health care of consumers.

Mr. Price.  Thanks.  I think you are absolutely right and encourage you to continue to champion that in the administration.

Ms. Kiehl, in my very brief moments ‑‑ in fact, the clock just turned, so I apologize.  We will get questions to you on the record.

Chairman Herger.  Thank you, Dr. Price. 

Now Mr. Johnson will be recognized for 5 minutes. 

Mr. Johnson.  Thank you, Mr. Chairman. 

You know, it appears to me, at least in the Dallas area, that physician‑owned hospitals versus other hospitals are doing a better job at lower cost.  I don’t know if you can confirm that or not, Dr. Ginsburg. 

Mr. Ginsburg.  I don’t have any specific evidence to compare physician‑owned with other hospitals. 

Mr. Johnson.  Why would we want ‑‑ why does a hospital want to purchase physician practices right now?  Can you talk to that? 

Mr. Ginsburg.  Yes. Hospitals are continually competing with each other for ‑‑ to get more patients, and the way they do this is to try to align physicians with them.  And since employing a physician is the ultimate alignment ‑‑

Mr. Johnson.  Well, that is happening all around, but I don’t see any reduction in cost. 

Mr. Ginsburg.  I wouldn’t expect any.  For one thing, we know that hospitals are able to negotiate much higher reimbursement rates from private insurers for their employed physicians than physicians are able to obtain in small practices.

Mr. Johnson.  But that is costing you and me more when we go to the hospital.

Mr. Ginsburg.  Absolutely.  It is costing us more when we pay our insurance premiums.  And, as Dr. Gaynor mentioned, even when it is employer‑paid coverage, the employees ultimately pay the bill.

Mr. Johnson.  Well, is there a deterioration in innovation and quality? 

Mr. Ginsburg.  As far as hospital‑employed physicians, if hospitals are going to innovate and integrate delivery, coordinate care, having employed physicians is going to be an asset to them.  Because in the traditional staff relationships, hospitals can have a lot of trouble engaging physicians in efforts to improve quality or coordinate care.  So it is going to be an asset if the system goes in that direction.

Mr. Johnson.  Okay.  Well, I am told that docs aren’t even going to school anymore because it doesn’t look like a profitable profession, and they work them too long. 

Ms. Kiehl, what do you think the current barriers are to transparency?  And is there anything this subcommittee can do to remove those barriers? 

Ms. Kiehl.  Well, I think one of the barriers is that providers contract with all the different plans at varying rates.  So they can’t even tell — their front office can’t tell a consumer what something will cost for that specific consumer. Try some time to find out what your rate would be for a colonoscopy.  They really can’t tell you.  Because they would have to go back to the contract and figure it out.  So it is very difficult. 

So this varying rate business really interrupts the ability to efficiently provide transparency. 

And the other barrier is the administrators, who also don’t want their rates to be disclosed because that would give an advantage to the administrator who had the best rate.  This is why we believe that providers should be in charge of setting what they charge for something, meaning they should decide what they can afford to charge for something, and they should compete with each other versus competing at a network level where the consumer really has no ability to impact.  They can’t choose their administrator, the employer chooses.

So are people going to call a prospective employer and first ask them, — do you offer a health benefit plan that has the best prices in the market?  Otherwise they just end up getting subject to whatever price happens to be in place with their employer’s carrier or their administrator to deliver their service need.  So it is just a dilemma that we are faced with at this time.

The other thing is that providers don’t want to display their rates either, because then everybody will know who does what at the best rate, and there is a lot of controversy on that in the provider community.  So there are confidentiality clauses that are in place in the contracts on both the administrator side and the provider side that interferes with transparency. 

The consumer is the one who really needs to have access to the rates. They are the purchaser.  Where else can you go and purchase something and not know the cost until after it is delivered to you?  It doesn’t make sense.

Mr. Johnson.  Okay.  Thank you. 

Mr. Balto, you had a comment. 

Mr. Balto.  Yes.  Sometimes our Federal Government creates impediments to transparency; and, as an example, the Federal Trade Commission has come out in opposition to transparency in the PBM market.  Certainly this is an area where there is a desperate need for transparency.  PBMs basically play the spread, getting one price for drugs and charging something much greater; and for some very‑difficult‑to‑discern reason the FTC has come out and said transparency is bad.  I don’t think there is a person in the Halls of Congress that would come out saying transparency is bad.

Mr. Johnson.  Thank you. 

Thank you, Mr. Chairman.

Chairman Herger.  Thank you. 

I apologize to our panelists and our members.  We do have a series of a couple votes followed by a moment of silence.  What I would like to do is, before calling on Mr. Pascrell for 5 minutes, to announce that we will ‑‑ I would ask the members to come back immediately after the moment of silence so we can get in maybe a final half hour of questioning before we adjourn. 

But, with that ‑‑ and we will recess at that time, but Mr. Pascrell is recognized for 5 minutes. 

Mr. Pascrell.  Thank you, Mr. Chairman. 

Mr. Balto, you express very particular concerns about the health insurance industry and the results of a private market that hasn’t protected the consumer and it has led to a dramatic increase in premium prices.  The facts are the facts, Mr. Balto, would you agree? 

Mr. Balto.  Yes. 

Mr. Pascrell.  While I pointed out earlier this year that when reform is implemented ‑‑ is implemented ‑‑ premiums will be reduced by 9.2 percent for American families with employer‑based insurance or, to put it better, $2,000 per family, I don’t believe we discussed certain details like the CO‑OP Program in health care reform. 

According to a Commonwealth Fund report of May, 2010, do you know that the CO‑OP Program in health care reform will support the creation of a new health plan in every State of the Union?  Is that correct, Mr. Balto? 

Mr. Balto.  Yes.

Mr. Pascrell.  Do you believe that the CO‑OP Program, section 1322 of the health reform bill, will help infuse competition into this private market which everyone wants to save and says is competitive? 

Mr. Balto.  I think the CO‑OP Program is important, along with other provisions of the ACA which I have detailed in my testimony.  It is going to provide greater transparency.  It is going to force the insurance companies to compete at a level that they haven’t had to compete up until now.

Mr. Pascrell.  Do you think that there is more that the Federal Government can do, that we can do to protect the consumer and promote competition in the health insurance market? 

Mr. Balto.  Two things quickly.  You should repeal the McCarran‑Ferguson Act which, for some reason, gives the health insurance companies an anti‑trust exemption.  The only other people that get it is baseball. 

And then, second, the FTC should establish a bureau to deal with consumer protection problems in the health insurance industries. 

Mr. Pascrell.  There haven’t been too many Justice Departments, regardless of who the President is, that have recommended that, Mr. Balto.  So we shouldn’t hold our breath over that. 

Mr. Balto.  Actually, the current Justice Department does recommend repeal of the McCarran‑Ferguson Act.

Mr. Pascrell.  Who recommended that? 

Mr. Balto.  Christine Varney in testimony in the last session.

Mr. Pascrell.  Somehow that got by us, I guess.  We have been talking about this for years.  Do you think it is possible? 

Mr. Balto.  Yes.  It passed by a strong ‑‑ over 400 Congressmen in the last session voted to repeal the McCarran‑Ferguson act. 

Mr. Pascrell.  Well, why haven’t we done that? 

Mr. Chairman, we ought to take a look at that.  I think that is critical.  I think it is essential to everything that we talk about in terms of health care.  Even the good doctor from Georgia agrees with me, right? 

Mr. Price.  Even.

Mr. Pascrell.  Very good. 

The Consumer Operated and Oriented Plan, the CO‑OP, was created by section 1322.  I think this is very, very important to what health care ‑‑ it is not a perfect piece of legislation, but I think that this CO‑OP is very important in section 1322.  It supports the establishment of nonprofit health insurance plans to compete with plans in the current market.  How do you think that is going to fly? 

Mr. Balto.  I think it is going to be an important competitive for us.  We like to call it, in anti‑trust jargon, a maverick, someone whose incentives are going to be totally different, they are going to be very consumer oriented.  And if there is sufficient transparency and choice, and the exchanges are going to help ensure that, you are going to see a change and a significant improvement in competition in health insurance markets.

Mr. Pascrell.  Thank you very much. 

Thank you, Mr. Chairman.

Chairman Herger.  Thank you. 

Again, this committee will recess.  We will come back immediately after the moment of silence.  Thank you.


Chairman Herger.  The Ways and Means Health Subcommittee will come to order. 

Again, I apologize to our witnesses for the votes we have had.  But, before this hearing wraps up, I would like to ask two questions. 

Dr. Gaynor, when plans, hospitals, or other brick‑and‑mortar providers exit a market, it generally puts upward pressure on the prices consumers pay for health care.  Are these higher prices transitory or a permanent issue for consumers? 

Mr. Gaynor.  Once prices go up, they stay up.  Price increases are not rescinded. 

So a price goes up this year, it is going to stay high next year and the year after that and so on.  If a hospital or a physician practice acquired market power and nothing changes that market power, they will continue to charge high prices.

Chairman Herger.  So do hospitals reenter the market or do consumers just have fewer choices? 

Mr. Gaynor.  When hospitals exit, they don’t reenter the market. 

Chairman Herger.  And, Dr. Ginsburg, Mr. Balto has suggested that provider consolidation is not a significant problem and that there is no evidence that higher physician costs are a significant driver of escalating health care costs.  However, you have noted that consolidation between hospitals and physicians can result in higher costs.  Can you describe the evidence you have seen in this point across the 12 markets you have examined? 

Mr. Ginsburg.  Yes, certainly.  First of all, as far as Dr. Gaynor mentioned before, the research on how hospital mergers affect prices is fairly clear that that leads to higher prices.  As far as physician ‑‑ hospital employment of physicians, we know just from our interviews, because we ask hospital executives and health plans how much they pay physicians who are employed by hospitals.  And in many large metropolitan areas the payment rates private insurance for small physician practices is not very different from Medicare rates, sometimes a little higher, sometimes lower.  But the rates that hospitals can achieve are substantially higher than Medicare rates. 

So this is a very recently developing phenomenon.  There has been a wave of hospital acquisition of cardiology practices that began in 2010.  So there hasn’t been an attempt quantitatively to say how much of premium increases is due to greater hospital employment of physicians.  But from our qualitative research it is very clear that this is going to be increasing premiums.

Chairman Herger.  Thank you very much. 

I would like to ask unanimous consent to enter into the record a new Rand Corporation study released yesterday that shows hospital consolidation, not insurance consolidation, is a leading driver in higher health care prices. 

Without objection, so ordered.

[Member Submission for the Record:  The Honorable Mr. Herger, Melnick Study]
[Member Submission for the Record:  The Honorable Mr. Herger, Article Re-Melnick Study]

Chairman Herger.  Again, I want to thank each of our witnesses for your testimony and for your insight.  Your participation was integral in helping us understand the history of consolidation, its current trends, and its implications.  The issue of consolidation warrants this subcommittee’s attention as all health care cost drivers need to be closely examined, especially in this challenging economic and budget environment. 

While I believe that market approaches hold great promise for improving the situation, my intent is to use the information we learn from this hearing as a starting point for further assessment of the consolidation issue. 

As a reminder, any member wishing to submit a question for the record will have 14 days to do so.  If any questions are submitted, I ask that the witnesses respond in a timely manner. 

With that, the Subcommittee stands adjourned. 

[Whereupon, at 11:50 a.m., the Subcommittee was adjourned.]


The Honorable Mr. Herger, Melnick Study

The Honorable Mr. Herger, Article Re-Melnick Study


American Medical Association
Coalition for Affordable Health Coverage
Glenn A. Melnick
National Community Pharmacists Association
The Center for Fiscal Equity
The Estes Park Institute