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Aug312015

Capture Market Share, Raise Prices

Two principles in medical economics central to the Affordable Care Act (ACA) were dealt blows by recently published studies. The first principle is the belief that economies of scale will result in lower prices. The theory is that larger insurers will have lower prices because they are more administratively efficient. The second principle is that provider-owned health plans, usually hospitals, will reduce premiums. The theory is that  by controlling doctors over charging health plans in a fee-for-service model will lower prices.

The first study published in Technology Science found that the largest insurer in each of the states served by HealthCare.gov raised their prices in 2015 by an average of over 10 per cent compared to smaller competitors in the same market (1). Those steeper price hikes for monthly premiums did not seem warranted by the level of health claims which did not significantly differ as a percentage of premiums in 2014.

The second study published by HealthPocket compared the lowest monthly premiums for provider-owned to nonprovider-owned plans within twelve counties across the US (2). The counties analyzed were spread across the eastern, central, and western regions of the U.S. Premiums were based on a 40-year-old, non-smoker profile. Insurance offered by health-care providers such as hospitals, was on average 12% more expensive compared to  traditional insurers. The data were also analyzed by the type of plan under the ACA: bronze, silver and gold. There were too few platinum plans to perform an analysis. Table 1 shows the local results in the three western states analyzed.

Table 1. Monthly premiums for Provider and Non-Provider Health Plans Under the ACA (2).

Silver plans account for two-thirds of plan selections on the ACA marketplaces during the 2015 annual enrollment period (3). Only the premiums for the bronze and silver provider-owned health plans in Arizona cheaper. Both in New Mexico and Utah all the provider-owned health plans and the more frequently selected silver plan in Arizona were all more expensive.

The premises of economies of scale and elimination of the fee-for-service reimbursement are both central to the ACA. Both appear to be myths. The results of these studies illustrate the sobering reality that the best intentions in reforming American healthcare do not necessarily produce the intent imagined. Despite the theoretical promise of reducing expenses by eliminating waste, both studies show an increase in healthcare costs, opposite the direction that traditional economics predict. Both larger companies and provider-owned health plans have a profit motive with numerous conflicts which likely accounts for these increases in premiums. Rather than allowing mergers and focusing on controlling physician behavior as strategies in reducing costs, it is time to focus on the insurers. Their strategy appears to be "capture market share, raise prices" and therefore their profits. This later premise agrees more with the data. Most of us who work in healthcare know this, it is time for those in Washington to pay attention to what is going on rather than their prejudices and political beliefs. 

Richard A. Robbins, MD*

Editor

Southwest Journal of Pulmonary and Critical Care

References 

  1. Wang E, Gee G. Larger Issuers, Larger Premium Increases: Health insurance issuer competition post-ACA. Technology Science. 2015081104. August 11, 2015. Available at: http://techscience.org/a/2015081104 (accessed 8/31/15).
  2. Colemen K, Gleeson J. Cheapest healthcare provider-owned insurance plans still 12% more expensive than cheapest insurance plans not owned by providers. HealthPocket. August 20, 2015. Available at: https://www.healthpocket.com/healthcare-research/infostat/fee-for-service-and-provider-health-plans#.VeRqLPlVhBd (accessed 8/31/15).
  3. Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report. ASPE Issue Brief. (March 10, 2015).

*The views expressed are those of the author and do not necessarily represent those of the Southwest Journal of Pulmonary and Critical Care, the American Thoracic Society or the Arizona, New Mexico, Colorado or California Thoracic Societies.

Cite as: Robbins RA. Capture market share, raise prices. Southwest J Pulm Crit Care. 2015;11(2):88-9. doi: http://dx.doi.org/10.13175/swjpcc115-15 PDF

References (1)

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Reader Comments (1)

An article by Neprash et al. (1) in JAMA Internal Medicine reports that as hospitals acquire physician practices the price for outpatient care increases. The study involved 7,391,335 nonelderly enrollees in preferred-provider organizations or point-of-service plans included in the Truven Health MarketScan Commercial Database. Data were analyzed from December 1, 2013, through July 13, 2015. Outpatient services delivered by hospital-owned outpatient practices had an increased of an average of $75 (95% CI, $38-$113) per enrollee in annual outpatient spending (P < .001) from 2008 to 2012 compared to non-integrated outpatient practices. This increase in outpatient spending was driven almost entirely by price increases because associated changes in utilization were minimal (corresponding change in price-standardized spending, $14 [95% CI, −$13 to $41] per enrollee; P = .32). This is consistent with the concept of "Increase Market Share, Raise Prices".

Richard A. Robbins, MD
Editor
SWJPCC

Reference

1. Neprash HT, Chernew ME, Hicks AL, Gibson T, McWilliams JM. Association of financial integration between physicians and hospitals with commercial health care prices. JAMA Intern Med. JAMA Intern Med. Published online October 19, 2015. Available at: http://archinte.jamanetwork.com/article.aspx?articleid=2463591

October 20, 2015 | Registered CommenterRick Robbins, M.D.

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