The big hospital companies’ ability to shrug off commercial insurer negotiators in many markets is so great that it’s reducing the efficiency of the hospitals in those markets, Miller says.
“It is imperative that Medicare continue to restrain payment rates for hospitals,” Miller says in a written statement he gave to the House Ways and Means Subcommittee on Health.
Hospital profit margins for all payers increased to an average of 7.3% in 2014, a 30-year high, “in part because of hospitals’ increasing market power resulting from continued hospital consolidation,” Miller said.
Miller is the executive director of the Medicare Payment Advisory Commission, or MedPAC.
Congress included the law creating the commission in the Balanced Budget Act of 1997. The 17 members of the commission are supposed to help members of Congress understand what’s happening at Medicare, and to suggests ways to improve the quality of the care provided and lower the cost.
Joe Swedish, the chief executive officer of Anthem Inc., a big insurer, has argued that one reason for the company’s unsuccessful effort to acquire Cigna Corp. was a need to increase the company’s ability to negotiate with big hospital chains.
Miller says in the written statement that big hospitals have so much more market power than the commercial insurers that they can make commercial insurers pay reimbursement rates that are about 50% higher than the Medicare rates.
“When a hospital receives higher payments from commercial payers, the financial pressure on the hospital is lower,” Miller says. “It therefore has less incentive to keep its costs low.”
In the hospitals with high private-payer profits from 2009 through 2013, there was evidence that the hospitals ended up with high expenses overall, not just high rates for commercial insurers, Miller says.
The hospitals with the high private-payer profits charged Medicare rates that were about 2% higher than the national median.