Hospital market concentration, pricing, and profitability in orthopedic surgery and interventional cardiology.

n policy n Hospital Market Concentration, Pricing, and Profitability in Orthopedic Surgery and Interventional Cardiology James C. Robinson, PhD H ospitals have been merging with and acquiring nearby facili- ties, creating local and regional chains that potentially wield greater bargaining leverage than do stand-alone facilities. 1 Concerns over the potential impact of health reform on hospital con- solidation and pricing have been raised recently in Massachusetts and California, where hospital mergers and large hospital systems have been associated with high costs of care, as well as on a national basis by the Department of Justice (DOJ) and Federal Trade Commission (FTC). 2-4 The association between hospital market concentration and pricing has been a long-standing focus for federal antitrust agencies concerned with the rising costs of care. It is gaining new attention as a result of 2 provisions in the 2010 health reform legislation. First, the expansion of coverage is to be financed in part via a slowdown in Medicare payment rate updates relative to predicted trends, which may lead to further in- creases in the prices charged by hospitals to private insurers. 5 Second, the consolidation of local markets may be accelerated by the provisions © Managed Care of the legislation that encourage hospitals and & physicians in local mar- Healthcare Communications, LLC that provide kets to integrate and form accountable care organizations the full spectrum of inpatient and outpatient services. 6 It is unclear whether integration with physicians gives hospitals pricing power over and above what they achieve through integration with other nearby hospitals, but the DOJ and FTC have raised concerns about this ongo- ing process. 7 DATA AND METHODS Data were obtained on patients admitted to 61 hospitals in 2008 for coronary angioplasty with drug-eluting stent, insertion of cardiac rhythm management (CRM) device (pacemaker or implantable cardioverter de- fibrillator), total knee replacement, total hip replacement, lumbar spine fusion, or cervical spine fusion. These facilities were participants in the value-based purchasing initiative of the Integrated Healthcare Associa- tion, a coalition of large hospitals, medical groups, and health plans in California, or worked on value purchasing with Aspen Health Metrics, a hospital consulting firm. Additional data on the hos- pitals where the procedures In this article were performed were obtained Take-Away Points / e242 from the American Hospital Published as a Web exclusive www.ajmc.com Association’s 2008 Annual Sur- VOL. 17, NO. 6 Objective: To examine the association between hospital market concentration and pricing. Background: Hospitals have been merging into systems that potentially wield bargaining power over private health insurers. Concern is growing among policy makers that these systems may respond to provisions of the 2010 health reform legislation by further increasing consolidation and prices. Methods: Multivariate statistical methods were used to evaluate the association between hos­ pital market concentration, prices, and profits (contribution margins) for commercially insured patients admitted for any of 6 major cardiac and orthopedic surgery procedures, adjusting for characteristics of the patient (diagnoses, co­ morbidities, complications) and of the hospital (size, patient volume, teaching status). Data were obtained on 11,330 patients treated in 61 hospitals in 27 markets across 8 states in 2008. Results: Hospital prices for patients in concen­ trated markets were higher than hospital prices for otherwise-comparable patients in competitive markets by 25.1% for coronary angioplasty, 13.0% for cardiac rhythm management (CRM) device insertion, 19.2% for total knee replacement, 24.1% for total hip replacement, 19.3% for lumbar spine fusion, and 22.7% for cervical spine fusion (P <.05). Contribution margins were higher in con­ centrated than in competitive hospital markets by $5259 for angioplasty, $3417 for CRM device insertion, $4123 for total knee replacement, $5889 for total hip replacement, $7931 for lumbar spine fusion, and $4663 for cervical spine fusion (P <.05). Conclusion: Hospitals in concentrated markets charge significantly higher prices and earn signifi­ cantly higher margins from private insurers than do hospitals in competitive markets. (Am J Manag Care. 2011;17(6):e241-e248) For author information and disclosures, see end of text. THE AMERICAN JOURNAL OF MANAGED CARE n n e241