The following appeared on The Upshot (copyright 2014, The New York Times Company).
Another hospital system wants to buy another health insurance company, and consumers may well wonder what this trend could mean for them.
As reported last week in Modern Healthcare, the St. Louis-based Ascension Health, the country’s largest nonprofit hospital system, “is in talks to acquire an unnamed insurance company that operates in 18 states.”
We’ve seen this before. One of New York’s largest hospital networks recently began offering its own health plan. Several other hospital systems, like California’s Sutter Health and Catholic Health Initiatives, which operates in 17 states, among others, have entered the insurance business.
More typically, health insurance and health care delivery have been separate businesses — adversaries, even — in negotiating over prices. Why are the two sides getting cozy?
There are several reasons hospitals might want to be in the insurance business, or more closely aligned with insurers. By acting in cooperation, a unified organization might be able to better design incentives for higher-quality care. Or, by combining similar functions like human resources or tech support, the organization might cut costs. A joint provider-insurer may also be better able to adapt to — and make more money from — new Medicare payment models in the Affordable Care Act. Eventually, an organization that combines the functions of health care provision and health care insurance might have a leg up in the market, putting competitors at a disadvantage or driving them out. With less competition, of course, an organization would be in a good position to raise premiums.
Wary of threats to competition and the effects on consumers and patients, health economists and antitrust regulators are watching these market dynamics with a concerned eye.
Last year, with Steve Pizer of Northeastern University and Roger Feldman of the University of Minnesota, in the journal Health Services Research, I published a study that directly related hospital-insurer integration with quality and premiums. We found that insurance plans offered by hospitals charge higher premiums. We also found that such plans are rated to have higher quality by consumers — but that about 70 percent of the additional premium was not attributable to higher quality. We found no evidence that integration is associated with more generous health plan benefits.
To my knowledge, ours is the only study to directly relate hospital-provided insurance with plan quality and premiums. This is in large part because this is a challenging area to investigate. There is no research-ready database of where and when hospitals and insurers unite. We had to collect such data and build our own database. Moreover, historical data on most insurers’ health care products are scattered and incomplete, if they exist at all. For this reason, we studied the private Medicare plan market (Medicare Advantage) for which such data are readily available.
More work needs to be done in this area. Our study showed that integration between hospitals and plans might not be good for consumers, but it is just one study and was based on only one year of data. Additional data collection and analysis would be challenging and costly, but worth the investment given its importance to the future of health care quality and costs.
