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Herger Opening Statement: Hearing on Health Care Industry Consolidation

September 09, 2011

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 private 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’s 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’s 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.