Not-for-profit hospitals may be hurting overall, as Standard & Poor’s recently reported, but Carilion Health System of Roanoke, VA, is among the hospitals able to utilize its dominant position to drive pricing and profits, according to an article in yesterday’s Wall Street Journal. The merger of Carilion with Roanoke’s other hospital in 1989 created what critic’s claim (and what Carilion denies) is a monolopy in the local market that is driving up healthcare costs, the Journal article says. Writes the Journal:
“The cost of health care in the Roanoke Valley—a region in southwestern Virginia with a population of 300,000—is soaring. Health-insurance rates in Roanoke have gone from being the lowest in the state to the highest.
“That’s partly a reflection of Carilion’s prices. Carilion charges $4,727 for a colonoscopy, four to 10 times what a local endoscopy center charges for the procedure. Carilion bills $1,606 for a neck CT scan, compared with the $675 charged by a local imaging center.
“Carilion’s market clout is manifest in other ways. With eight hospitals, 11,000 employees and $1 billion in assets, the tax-exempt hospital system has become one of the dominant players in the Roanoke Valley’s economy. Its dozens of subsidiaries include businesses ranging from athletic clubs to a venture-capital fund.”
Carilion is now trying to convert to a clinic model, angering local doctors who wish to remain independent, the Journal reports, and also plays hardball with patients who can’t afford to pay their bills.
Of course, there are other hospital systems that dominate local areas—systems built in part as a response to the growth of managed care. What’s interesting is that from 1991 through 2007 managed care premiums nationwide rose about 6% to 8% annually. That encompasses years like 2003, when rates rose nearly 15%, as well as years like 1995, when rates actually fell slightly. The figures are based on CRG’s annual survey of employers, health plans and employer coalitions.
Looking at it another way, per capita expenditures on healthcare in the U.S. have risen at a compounded annual rate of about 6% to 7% since 1970.
As I noted in an opinion piece two years ago, “So what caused the wild premium swings of the last decade? The short answer is managed care. We’re all familiar with the chain of events. HMOs squeezed providers and limited access to care in the early 1990s and successfully drove down the rate of increase in costs.
“Then came the HMO backlash. Consumers demanded open access. Hospitals consolidated into health systems with negotiating clout. Managed care plans—bleeding red ink in part because of an inability to control costs, in part from underpricing to win market share—did the predictable; they raised rates to avoid going out of business.
“So after nearly two decades of bitter and destructive battles between health plans, consumers, providers, regulators and legislators, we sit here in 2007 with healthcare premiums still rising at about the same annual level as over the past 17 years and costs rising at about the same annual level as over the past 37 years. The expectation is for national healthcare expenditures to rise a tad over 7% annually for the next five to six years as well.”
Not a pretty picture, no matter who you’re pointing fingers at.