Healthcare Matters

According to a new study in Health Affairs (not yet available to the public), hospitals are figuring out how to increase their leverage and secure higher prices from insurers. Believe it or not, the American Hospital Association (AHA) takes great issue with these findings. “We recognize no underlying validity to the study,” said Melinda Hatton, the AHA’s general counsel.

What?

Despite a climate of falling reimbursements, a new shared-savings calculus and a growing number of providers who struggle to remain solvent, the American Hospital Association’s (AHA) reaction makes no sense whatsoever. The AHA would have been better served had it reacted to the study’s conclusions by saying something like: “… and the point is?”

The study indicates that hospitals are trimming their service lines and optimizing around those where demand is most profitable. Beyond simple consolidation strategies, the strongest providers are getting a lot more particular about who they buy. They’re studying all the obvious angles (i.e. service lines, geography, demography and payer mix implications) with a goal to maximize their negotiation leverage with private insurers.  And because the nonprofits that dominate the marketplace are not encumbered by the same level of anti trust scrutiny that other industries are, a great number are going for it.

And it’s working. According to the study, hospitals are actually getting higher prices from the private insurers. Even better, the prevailing wisdom indicates that neither the hospitals nor insurers think that healthcare reform can stop the most powerful hospital groups from “continuing the practice.”

Actually, it’s quite a dilemma. Because the Act is obliging insurance companies to make adjustments, including mandated benefit pay outs equal to 80% of collected premiums, the industry is furiously re-optimizing the distribution of its own wealth. And it’s forced to do it, apparently, at the same time its customers are learning to drive harder bargains.

The AHA is in the public relations business. It should do a better job of explaining that break even business models are not sustainable and applaud those providers who have succeeded in leveling the playing field. There will always be abuses to manage, but the AHA would have more credibility if it didn’t always act surprised when providers demonstrate their business acumen.

—Tom Finn

Editor’s Note: When we are allowed to publish the study, we will.