Hospital Market Concentration Discussion-ctd
August 27, 2011 5 Comments
Austin (@afrakt) posted a FAQ on the effect of hospital market concentration on hospital prices last week. Avik Roy (@aviksaroy) also posted about this recently and Dan Diamond (@ddiamond) and Charles Ornstein (@charlesornstein) are tweeting with them about the influence of hospital/health care system aggregation on the health care system generally. They have generally been noting that health care systems/large hospital providers have far more market power than do health insurers.
In my neck of the woods, UNC Health Care System yesterday rejected a $750 Million hostile takeover bid from WakeMed, to purchase Rex Health care, a hospital and health care system based in Raleigh, N.C. The players are as follows:
- UNC Health Care is the University of North Carolina at Chapel Hill’s health care system, whose flagship is UNC Hospitals. It is a state-owned system. There are massive budget cuts for the University this year, so the potential of a $750 Million cash infusion could be attractive.
- WakeMed is a large hospital in Raleigh (N.C.), around 30 miles from UNC hospitals. Wake Medical Center is a large county hospital that is now the center of this large Not for Profit health care system known as WakeMed.
- Rex Health Care is a Non Profit hospital and health system also in Raleigh, (N.C.) that UNC Health Care owns, and which WakeMed says UNC hospitals uses to unfairly compete with them. WakeMed wants to buy it from UNC.
- Unmentioned in this story is the other massive player in this area, Duke University Health Care, that owns Duke Raleigh Hospital, another Non Profit hospital and health care system in Raleigh (N.C.). Duke also controls Durham Regional hospital and the hospital in the county immediately north of Durham county.
At some level, everything around here is UNC v. Duke, be it basketball or health care. There has been tremendous aggregation of medical practices in Orange county (where UNC is located), Durham county (where Duke is located) and Wake county (where WakeMed, Rex, and Duke Raleigh) are located. Duke and UNC mostly have Durham and Orange counties locked up, and both have been competing for practices in Wake County as has WakeMed; the quickest way to gain power is to purchase a hospital and its affiliated physician practices.
One event that may have touched off or accelerated this attempt by WakeMed to challenge UNC’s power, was the announcement last winter of a pending joint venture between UNC Health Care and Blue Cross Blue Shield of NC, the largest private insurer in North Carolina (with around 70% of the market share) to directly provide health care in the Research Triangle area.
From where I sit, the only real long run provider system question in this area is whether the Research Triangle becomes UNC v. Duke only, or whether WakeMed is able to survive, thrive and grow to make it a three-way competition? How these sorts of questions play out in many local markets nationally will have a great impact on the health care system in the future.
*Full Disclosure: I am an employee of Duke University. I have no role in the functioning of the health care system in either a policy or administrative manner. My wife is a nurse at UNC Children’s Hospital in Chapel Hill, an affiliate hospital of UNC Health Care.
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While we have fewer people in our area, we are seeing the same dynamic. We are heading towards two large networks. The exceptions will be, for now, some physician owned surgicenters. Even those will likely be owned by one of the networks soon, as a surgicenter owned by a hospital can bill for about 20% more, IIRC, for the same procedures.
Steve
It’s certainly true that hospital systems (not necessarily stand alone hospitals) have more market power than insurers. That leads to the question of why. As your example shows, an insurer can have 70% market share while three hospital systems may have 30% each in a three county area but the hospital systems each have more market power. Part of that is micro-markets and how a hospital can have say 80% share in a 10 mile radius, but only 20% share in a county, and the smaller area matters when it comes to essential medical care in several ways.
But a big part of the problem, perhaps far larger, is that employers who purchase around 85% of commercial insurance became allergic in the late 90s to purchasing insurance products with limited networks. Especially when it comes to hospital systems, insurers lost a lot of their leverage in negotiating when they couldn’t credibly threaten to exclude a system from the network.
The tide, by the way, may be starting to turn, and don’t be surprised if smaller network products with lower premiums become a hit on the exchanges. There is already evidence from Massachusetts that individuals purchasing on the exchanges will be a difference maker here. I’m admittedly optimistic on this point, but I will go out there and predict that a full 1% of medical cost trend will be shaved through the direct and indirect effects of plans selling more products with tight networks and their improved negotiating power even on larger networks. No idea if we will really be able to tease that out with confidence from the data.
Hi Don,
Thanks for this discussion. FYI it’s @aviksaroy not @aviksroy.
Best,
A.
Though not my post, I fixed it.
Sorry Avik and thanks Austin