A Hospital’s Market Clout and the Cost of Healthcare

August 29, 2008

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 Valleya region in southwestern Virginia with a population of 300,000is 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.


Betting on Healthcare Stocks

August 29, 2008

Here’s a brief video interview on TheStreet.com with Kelli Hill, portfolio manager, Old Mutual Large Cap Growth fund, discussing her investments in Johnson & Johnson and other healthcare companies.

Obama to Nation: I Will Heal Thee!

August 29, 2008

In his speech last night accepting the Democratic nomination for President, Barack Obama called for universal health care and slammed insurance companies that discriminate against the sick and dying.  Said Obama: “Now is the time to finally keep the promise of affordable, accessible health care for every single American.  If you have health care, my plan will lower your premiums.  If you don’t, you’ll be able to get the same kind of coverage that members of Congress give themselves.  And as someone who watched my mother argue with insurance companies while she lay in bed dying of cancer, I will make certain those companies stop discriminating against those who are sick and need care the most.”  Here’s the full text.

Managed Dental Market Still Tight

August 28, 2008

A report from Corporate Research Group, publisher of this blog, says that “competition among managed dental plans is becoming more intense as the market matures, leading to consolidation and pricing pressures.  In addition, managed care organizations are expanding their specialty businesses and bringing dental benefits in-house.”

According to the report, title, Outlook for Specialty Health Benefits, managed dental companies are expected to cover 21.8 million dental HMO lives in 2008, up 0.5% from 21.7 million in 2007.  Revenues will grow 3.9% to an estimated $3.865 billion, report says.

Clinton (Bill) Takes Shot at McCain and Insurance Industry

August 28, 2008

In his presentation to the Democratic national convention last night, former President Bill Clinton said that Republican candidate John McCain wants, “More band-aids for health care that will enrich insurance companies, impoverish families and increase the number of uninsured.”  Here’s the full text, which includes a few other remarks on healthcare, and below is the full video.

Are CDHPs Saving Money?

August 28, 2008

Are consumer-directed health plans saving money?  The results are modest, benefit consultant Milliman says its Summer 2008 issue of Health Perspectives:

“At first glance, CDHPs appear to deliver dramatic savings.  Looking more closely, however, many of the cost reductions are the result of favorable risk characteristics….The risk profile of the population choosing CDHPs is younger and healthier.  This is not surprising and could well be cause for further caution…. 

“After normalizing for risk factors, CDHP-allowed claims are about 4.8% lower than would be predicted by typical risk and benefit-design factors.  Because high-deductible plans would be expected to lower utilization by 3.3% for these plan designs, the excess savings beyond those anticipated by all actuarial factors are about 1.5%.  The savings, while modest, show that CDHPs have some inherent cost-reducing potential.”

Rounding Up Some Comments on the Decline in Uninsured in 2007

August 28, 2008

As we reported earlier this week, the U.S. Census Bureau released data (full report) showing that the number of people without health insurance fell nearly 3% to 45.7 million in 2007, with the entire improvement coming from government-sponsored programs as opposed to market-based solutions.

Here’s what some industry representatives, researchers, politicians, and policy wonks had to say about the results:

Karen Davis, president, The Commonwealth Fund: “Today’s data release shows the importance of the nation’s safety net insurance system—Medicaid and the State Children’s Health Insurance Program.” (press release)

Karen Ignagni, chief executive, America’s Health Insurance Plans: “While the Census Bureau reports a modest decline in the uninsured rate, this does not reduce the urgency of the crisis….We need coverage for all Americans, coverage they can afford, and coverage they can keep.” (press release)

Nancy Nielsen, M.D., president, American Medical Assn.: “Employer-based health insurance is no longer an option for many workers and their families, as employment-based coverage continued to decline in 2007, dropping to 59.3 percent….We advocate for a shift in tax incentives for health insurance so lower-income Americans get money to purchase coverage. We also want insurance market reforms to provide individuals more choices and ensure coverage for high-risk patients.”

U.S. Senator John McCain (R-AZ): “My health care plan will substantially reduce the rolls of the uninsured by providing a $5,000 per family refundable tax credit that will help more Americans get the coverage they need or maintain the coverage they already have.” (press release)

U.S. Senator Barack Obama (D-IL): “Between 2000 and 2007, an additional 7.2 million Americans have fallen into the ranks of the uninsured. This is the largest increase in the number of people without health insurance of any Presidential Administration on record. ” (press release)

Jared Bernstein, senior economist, Economic Policy Institute (as quoted in the New York Times): “The data in this report refer to last year, when everything was different….This year, we’re losing jobs on a monthly basis, inflation is running well over 5 percent, and unemployment was last seen at 5.7 percent and rising.”

Devon Herrick, health economist, National Center for Policy Analysis: “Despite claims that there is a health insurance crisis in the United States, the number of U.S. residents without health insurance actually fell in 2007….The slight increase in the number of uninsured over the past decade is largely due to immigration and population growth—and to individual choice.” (press release)

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