Trend Toward Centralized Health Care Driving Costs Up

by Vermonters for Economic Health

‘Efficiency’ Trend Toward Centralized Health Care Driving Costs Up

Heartlander ran a commentary by Benjamin Domenech citing a Wall Street Journal article examining the medical cost implications resulting from hospitals purchasing doctors’ practices. The trend is accelerating nationally and is even more pronounced in Vermont where it is estimated a majority of all physicians are now employed by hospitals and federally-funded clinics.

Outside Vermont the principal driver of this trend is the dramatic difference in government reimbursement rates for services provided by an independent practitioner versus the same services (often in the same office) provided by and billed through a hospital. For example, hospitals are now reimbursed 45% more than independent physicians for certain cardiologic services. For physicians with large numbers of Medicare and Medicaid patients the choice comes down to either sell the practice to the hospital, severely limit the number Medicare and Medicaid patients you will accept, or go out of business.

Within Vermont another force is encouraging this trend – the uncertainty associated with the single payer health care reform. For doctors already here, employment by a large institution is seen as a less risky environment within which to practice today. And reports from some Vermont hospital officials indicate that recruitment of doctors to come to Vermont is all but impossible given the uncertainties created by Governor Shumlin’s government monopoly single payer reforms.

The federal government has created these incentives to centralize medical services out of a mistaken belief that by doing so we will realize greater efficiencies and lower costs. This is the same philosophy driving Governor Shumlin and legislative leaders to create a government monopoly single payer system. But the actual result of the centralization of services appears to be just the opposite. According to Heartlander and the Wall Street Journal,

“The result is that the same service, even sometimes provided in the same location, can cost more once a practice signs on with a hospital. Major health insurers say a growing number of rate increases are tied to physician-practice acquisitions. The elevated prices also affect employers, many of which pay for their workers’ coverage. A federal watchdog agency said doctor tie-ups are likely resulting in higher Medicare spending as well, because the program pays more for some services performed in a hospital facility.”

This result also reinforces the findings of a study conducted by the Attorney General of Massachusetts which concluded that larger hospitals negotiated higher prices with insurance companies for the same services with essentially the same outcomes as smaller hospitals merely because their size gave them more clout in negotiations.

Domenech concludes with,

“Doubling down on monopolization as the key to bending the cost curve is fool’s gold. It has not produced better outcomes in Britain, nor will it produce them here. Instead it will result inevitably in rationed care and drive hospital centers to take over as much of the marketplace as they can. The end result is a crony capitalist-only health care system, where the only way to survive is to become too big to fail. And you know how that works: The systems will survive, but only on the backs of the taxpayer.”

Domenech’s column in Heartlander is here:

The WSJ article is here (for subscribers):

An excellent analysis of the reimbursement situation by Dr. Dan McCauliffe is here:

The study by the Attorney General of Massachusetts is here:

A VHCF Commentary on the findings of that study can be found here:


VHCF Offers Comments on Essential Health Benefit Plan Recommendations 

VHCF has submitted comments to the Green Mountain Care Board concerning the Department of Vermont Health Access’ recommendations for benefits and plan designs for the plans to be offered through the Health Benefits Exchange, scheduled to be operating 13 months from now. The comments restate those provided by Newsletter over the last two weeks and:

  • Support the selection of BCBS, SCHIP and Habilitative services as recommended by DVHA;
  • Call for an actuarial analysis of the cost of coverage of only federally-mandated services to allow policy makers to see the magnitude of the potential ‘exponential’ increase in costs to Vermont should the federal government cease subsidizing premiums for state-mandated benefits in 2016;
  • Call for the expansion of the recommended six plan designs to a much larger number, incorporating multiple options for use with Health Savings Accounts;
  • Urge maximum flexibility be allowed for insurers offering “Choice” plans;
  • Allow “Choice” plans at the ‘platinum’ actuarial level;
  • Open the opportunity for ‘”Choice” plans to an unlimited number at all actuarial levels.

VHCF’s comments are available here:


Complaints about Britain’s NHS Increase 8% 

The Guardian on Facebook ran a short article on a reported 8% increase in written complaints about the UK’s National Health Service. Similar to the situation in Canada, Brits love the NHS as an institution but individual experiences are far from universally positive. The Guardian writes,

“. . . More than 12,000 of the complaints related to the “attitude of the staff”, while almost 50,000 in England were about “all aspects of clinical treatment”. About 10,000 concerned “communication to patients”.”

The full Guardian article is here:


VHCF Launches New TV Ad

VHCF released a new television and web ad on Monday, featuring a message about how government monopoly single payer health care will intrude in the doctor-patient relationship. Within the first 24 hours after its release the ad was seen nearly 1,000 times, and traffic continues to grow.

A number of news outlets ran stories about the ad and VTDigger generated a very long (57 at this writing) and spirited string of comments in response.

The ad is currently viewable only on the web but VHCF hopes to use this exposure to raise additional funds so that it can be aired on Vermont television stations, thereby reaching a much larger audience.

The 30 second ad can be viewed here:

The VHCF press release and VTDigger comments are available here:


Let’s agree not to Follow This Example: China

The Associated Press ran a long story about patients attacking – sometimes murdering – doctors in China out of frustration with that nation’s “chaotic” health care system. Since the revolution, China offered health care through large facilities in cities and minimal services through a system of “barefoot doctors” in rural areas. Reforms beginning in the 1980’s included cutting government health care funding and giving providers the opportunity to make more money through the sale of prescription drugs and technology. The response to the new incentives was a dramatic increase in health care spending.

Health care in China is not ‘free’. Patients are responsible for paying a substantial portion of costs out-of-pocket. Universal access to insurance coverage was recently attempted – expanding access from 30% to 96% of the population over 8 years – but the increased demand has crashed into a long standing doctor shortage, further eroding access and quality. The AP reports:

“Hard work and low government-set salaries have made the medical profession one of the least popular in China. Entry-level doctors in major cities earn about 3,000 yuan ($500) a month, doctors say, about the average income of university graduates despite more work and more risk. In grassroots facilities like the hospital Chen worked in, salaries are even lower. After 11 years, Chen was earning only around 3,500 yuan ($550) a month, more if she saw more patients.

The low wages have led to widespread and well-known corruption, which fuels hatred of doctors. Many users of popular online microblogs have cheered the attacks on doctors as rightful punishment for corrupting the health care system.”

Newsletter believes the lesson here is clear – when fiddling with a system as complex as health care the best of intentions of central planners invariably yield undesirable and unintended results. Governments must be very careful to get the incentives right so that the needs of individual patients are served. Ultimately this is only possible if providers are respected and critical decisions about care are left to patients and doctors in an environment of transparent cost and quality.

The AP story “China’s chaotic health care drives patient attacks” is available here: