Search the LHSFNA website
Published: Winter, 2006; Vol 8, Num 1

LHSFNA Urges Examination of Local Data:

Hospital Consolidation
Behind Recent Cost Escalation

“The most significant, immediate cause of health care cost inflation has shifted over the last two decades,” say LIUNA General Secretary Treasurer and LHSFNA Labor Co-Chairman Armand E. Sabitoni. “Early on, doctors’ fees were the culprit. Later, escalating prescription drug prices led the way. Over the past few years, corporate consolidation in the hospital industry has fueled increases by eliminating competition and reducing or confusing the choices of health care consumers.”

An evaluation of state-level health care cost data shows that, between 1998 and 2002, inpatient costs accounted for 34.2 percent of the overall increase in health care cost. Outpatient costs contributed 32.6 percent, and prescription drugs added 33.2 percent.

The study – Health Cost Drivers: An Evaluation of State-Level Data – shows that a one percent increase in network (non-profit) hospital share (of the overall market in a particular region) produces a one percent decline in inpatient costs while a one percent increase in for-profit or medical system hospital share produces a two percent increase in costs.

Sally Covington – Director of the California Health Care Coalition (CHCC), a network of unions, health and welfare funds and employers that is searching for effective remedies to the cost crisis – says “the industry is milking the health care programs” of the nation’s union workers and their signatory employers, often charging more in one area for a service provided at lower cost and better quality in another. “Today,” she says, “purchasers can pay two or three times as much at a hospital with a poor quality track record than at another with superior quality.”

A Few Bad Apples…

Covington cites four factors that enable this scam. First, most performance reporting from hospitals is strictly voluntary, so the available data often cover only the best results and seldom touch on any high-risk, high-cost procedures. Second, except in a few states, hospitals are not required to publish the prices they charge the public, nor the price lists negotiated with health plans or large group purchasers. Without information about medical outcomes and prices charged, it is impossible for consumers to make informed choices.

A third factor is the consolidation of hospitals, mentioned above. Data show that when hospitals merge, they gain more control over prices in their local market, but no evidence supports a claim that mergers increase the quality or efficiency of care. Finally, while hospitals use mergers to improve their control over prices, purchasers remain fragmented. This fourth factor limits the purchasing power of health care consumers, vis-à-vis the hospitals, and inhibits their ability to share knowledge.

Through creation of the CHCC, unions, funds and employer allies in California found a way to concentrate their experience with health care providers, identify the bad apples and get better deals from the better providers (see sidebars).

LHSFNA Proposal

“We can all learn some things from the California model,” says LHSFNA Health Promotion Division Director Mary Jane MacArthur, who is launching an online forum to facilitate discussion and exchange among LIUNA health and welfare fund administrators. MacArthur lists five goals for LIUNA funds:

1. Build or join a local purchaser coalition with union funds in your local market.
2. Pool and analyze claims data to identify and, if necessary (should negotiation fail), eliminate bad apple providers.
3. Negotiate as a group for better prices and improved quality with acceptable health care providers.
4. Educate the public, beneficiaries and elected officials about the causes and remedies of the health care cost crisis.
5. Pursue state-level reform to require the same cost, quality and transparency standards for care providers as for health plans and to improve public access to detailed cost and quality data from providers.

“Nationally,” says Sabitoni, “we will do all we can to facilitate local assessments and to promote successful results. We can’t reform the nation’s health care system, but we can find the sharks and make sure LIUNA members aren’t among their victims.”