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Cost rises linked to health care consolidation

Cost rises linked to health care consolidation

The acquisition of physician practices by large hospital systems is having an adverse effect on states’ workers compensation systems, experts say. 

While proponents of so-called “vertical integration” in health care say the practice benefits consumers by delivering care more efficiently, workers comp researchers say consolidation drives up pricing due to decreased competition and can have a negative effect on return-to-work outcomes. And the efficiency argument, they say, relates to administrative efficiency, not patient care efficiency. 

The Cambridge, Massachusetts-based Workers Compensation Research Institute in December published a study showing that between 2012 and 2018, vertical integration of care in consolidated medical systems resulted in an 11.4% increase in workers comp claim costs. 

“I would say that, overall, vertical integration does lead to general and higher payments for medical care,” said Kate Farley-Agee, Plainfield, Illinois-based vice president, product management, for Coventry Workers’ Comp Networks, a subsidiary of Enlyte LLC. 

Earlier in 2023, the WCRI found that vertical integration increased payments per visit by 10%, and in December researchers determined the practice also affected payments per claim, the number of medical visits per claim, and the amount of care provided per visit. 

When physician practices are consolidated into larger health care systems, “way more providers actually see the patient,” and more services are billed per visit, said Joe Paduda, Plainfield, New Hampshire-based principal with Health Strategy Associates, a workers comp consultancy. 

Workers comp medical fee schedules, which usually act as a check on costs, aren’t much of a mitigating factor under vertical integration because increased services still translate to increased costs, Mr. Paduda said. 

“There’s been this payer consolidation and then there’s provider consolidation, and the providers will say that we have to get bigger so that we can negotiate effectively against these bigger payers,” he said. “So, it’s sort of like an arms race.”

When systems are vertically integrated, injured workers also tend to undergo more intensive and costly imaging testing, said Steve Bennett, Washington-based vice president of workers compensation programs and counsel for the American Property Casualty Insurance Association. If this results in improved outcomes, vertical integration could be viewed in a more positive light, but “evidence so far is that return to work is worsened,” he said.

“People stay out of work longer, get more temporary disability benefits when they’re being treated by physicians” working under larger hospital systems, Mr. Bennett said. WCRI researchers found that return to work is negatively affected by the consolidations. 

Insurers have felt the brunt of vertical integration, according to Jason Beans, CEO of Chicago-based Rising Medical Solutions Inc., which provides workers comp services. 

“It’s limiting access to care, and it does drive up pricing when they do these mergers,” he said. 

Blaming rising workers compensation claims costs on vertical integration is too simplistic, said Richard Gundling, vice president of Downers Grove, Illinois-based Healthcare Financial Management Association, whose members include hospitals and health care systems.

“Attributing it to mergers and acquisitions is limiting because the overall cost increases for labor, drug costs, supplies, has exponentially risen in the last several years,” he said.

Horizontal integration, or the process of one hospital system acquiring another, poses a similar set of problems for workers comp, including increased costs and delayed return to work, experts say (see related story below).

The move toward consolidation, whether vertically or horizontally, can be traced back more than a decade to the passage of the federal Affordable Care Act, which provided health insurance options for millions of uninsured people, said Ms. Farley-Agee of Coventry Workers’ Comp Networks.

“When that first happened, I think there was a lot of uncertainty on the provider side and certainly on our side as well because we all knew it was broad sweeping, it was a wide impact in general to the health care system,” she said. 

The consolidations have affected patient populations differently, since general health patients have shared payment responsibility whereas workers comp claimants have no out-of-pocket expenses, Ms. Farley-Agee said. 

Workers comp insurers are more affected “because they’re the ones that are paying for the care, and so, whatever the fees are, whatever they’re having to pay, is their responsibility primarily, not the patient’s,” she said.

According to the December WCRI report, the number of physicians in 34 states researchers analyzed who were integrated with health care systems between 2012 and 2018 jumped from to 49% from 32%. 

On the orthopedic side, practitioners went from 18% hospital system affiliated to 35%, which could have a large effect on workers compensation as orthopedic physicians are the providers who most often render care to injured workers, according to experts. 

Another possible downside to vertical integration, they say, is access to care. Patients and workers comp claimants in more rural areas, for example, might be underserved if providers consolidate with hospital systems that are located in urban centers. 

While vertical integration has negatively affected workers compensation by leading to higher medical spending and delayed return-to-work outcomes, horizontal integration in health care has also influenced injured worker care, experts say. 

Horizontal mergers and acquisitions in health care involve consolidation of individual hospitals into larger health care systems or hospital systems joining other hospital systems, while vertical integration is the acquisition of a physician practice by a health system.  

Jason Beans, CEO of Chicago-based Rising Medical Solutions Inc., said a self-insured municipality in Florida, a client, noticed medical costs rose “dramatically” when one hospital system in the region was acquired by a national health care system. 

“So, literally in the same facility with the same doctors, the prices have gone up maybe 25%,” said Mr. Beans, who did not name the client. “That’s anecdotal, but it’s logical, especially now that venture capitalists and the bankers are getting involved. It’s become much more of a business.”

The trend toward increasing hospital consolidation is expected to have a continuing effect on workers comp by producing upward pressures on utilization and pricing, according to the Boca Raton, Florida-based National Council on Compensation Insurance. 

NCCI researchers found that hospital mergers often increase the likelihood of intensive surgery and the total number of surgeries for workers comp claimants, while failing to improve outcomes. Mergers have also been found to reduce hospital costs per risk-adjusted discharge while failing to reduce the price of hospital care to insurers, according to the NCCI.