Healthcare Savings — Lies and Punchlines

Healthcare executives always lie about why they did what they did, whether what they did is a merger, acquisition, affiliation or strategic partnership. The only correct answer is “for economic reasons.”

They made a deal to preserve revenue or profits or to increase revenue or profits. That’s it. Sorry.

One of my favorite lies told by healthcare executives is that a deal will save money, and they will pass those savings along to patients, members, consumers, customers or whomever. To my knowledge, no patient, member, consumer, customer or whomever saved money from a healthcare deal. And to my knowledge, no one has ever called healthcare executives out on it.

That is, until now. It’s at the end of a short but telling study published last month in Health Affairs.

Three researchers from DePaul University in Chicago wanted to find out how health insurance market power affected hospital prices. The researchers theorized that hospital prices would be lower in highly concentrated health insurance markets because the health insurers in those markets would use their market power to negotiate lower prices for care from the hospitals in those markets. In other words, such markets would behave the same way they would in any other industry given the same dynamics.

And to no one’s surprise, they do.

Using price data from about 1,500 hospitals for 14 “shoppable” medical services, the researchers found that the prices for those services were 14.7% lower in markets where one health insurer controlled 72% or more of the market compared with markets where the dominant health insurer controlled less than 48% of the market. How much lower varied significantly by hospital ownership status:

• 31.9% lower for for-profit hospitals
• 16.3% lower for public hospitals
• 6.8% lower for not-for-profit hospitals

That suggests that for-profit hospitals mark up their prices significantly more than public and not-for-profit hospitals. Not a shocker there, either.

As for the 14 shoppable services, the most affected by insurer market power was electrocardiograms (ECG). In highly concentrated insurance markets, the price for an ECG was 67% lower. The least affected was 60-minute new patient office visits — only 1.5% lower.

But the punchline and idea for this post come at the end of the study when the researchers say: “A critical question for policymakers and consumers is whether savings obtained from lower prices are passed on in the form of lower premiums. The relationship to premiums is theoretically ambiguous.”

If health services research doesn’t work out for this trio, The Second City Theatre is only about a mile and a half away from DePaul. Hysterical.

Thanks for reading.