News Release

Health Care Markets Weather Economic Downturn, Brace for Health Reform

WASHINGTON , DC—Lingering fallout—loss of jobs and employer coverage—from the great recession slowed demand for health care services but did little to slow aggressive competition by dominant hospital systems for well-insured patients,according to key findings from the Center for Studying Health System Change’s (HSC) 2010 site visits to 12 nationally representative metropolitan communities.

Despite the weak economy, hospitals with significant market clout continued to command high payment rate increases from private insurers, and tighter hospital-physician alignment, particularly growing hospital employment of physicians, heightened concerns about growing provider market power, the study found.

“Despite the sluggish economy, dominant hospitals and systems generally maintained strong bottom lines, and many expanded beyond traditional geographic boundaries in their quest for well-insured patients,” said HSC President Paul B. Ginsburg, Ph.D.

High and rising premiums led to increasing employer adoption of consumer-driven health plans and continued increases in patient cost sharing, but the broader movement to educate and engage consumers in care decisions lagged. State and local budget deficits led to some funding cuts for safety net providers, but an influx of federal stimulus funds increased support to community health centers and shored up Medicaid programs, allowing many people who lost private insurance because of job losses to remain covered.

Hospitals, physicians and insurers generally viewed health reform coverage expansions favorably, but all worried about protecting revenues as reform requirements phase in.

The study’s findings are detailed in a new HSC Issue Brief
Key Findings from HSC’s 2010 Site Visits: Health Care Markets Weather Economic Downturn, Brace for Health Reform—written by Laurie E. Felland, Ha T. Tu and Joy M. Grossman, all HSC senior researchers. The 2010 Community Tracking Study (CTS) site visits were jointly funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform.

HSC researchers periodically visit 12 nationally representative metropolitan communities, interviewing representatives of providers, health plans, employers, policy makers and consumers. The 12 communities are Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC has been tracking change in the CTS markets since 1996.

Other key findings from the 2010 HSC site visits include:

  • Hospital-Physician Alignment. Since 2007, in many communities, the trend of hospitals employing physicians has accelerated. Hospitals see physician employment and tighter alignment not only as a way to capture more specialty referrals and hospital admissions in a fee-for-service payment system, but also as central to building the clinical and financial integration needed to succeed under potential new payment models, such as accountable care organizations (ACOs), that involve risk-sharing and reward quality and efficiency. Physicians in most markets were more actively seeking the stability and security of employment in larger physician-owned or hospital-owned groups.
  • Premium Hikes Attract Scrutiny. Large provider rate increases generally were passed on to employers in the form of premium increases—adding to the acute cost pressures of the economic downturn on employers. Health plans’ inability to stem provider payment rate increases was most pronounced in markets like Miami, where a highly fragmented health plan sector lacks clout against increasingly consolidated hospitals and single-specialty physician groups. Rate increases also proved hard to contain in Boston, where the prestige and brand-name appeal of select academic medical centers confer market clout. While the pattern of high and increasing provider leverage was evident in many markets, it didn’t hold true in all communities. Highly dominant plans in some markets—such as Blue Cross Blue Shield plans in Lansing and Syracuse—continued to keep provider rate increases relatively in check.
  • Consumer-Driven Health Plans (CDHPs) Grow, But Consumerism Lags. The past few years have seen significant CDHP growth in most markets—often starting from a negligible base and increasing to a modest share of enrollment overall, but a significant portion of small-group enrollment. While CDHPs gained some traction in many markets, the broader consumerism movement did not keep pace. There was limited growth in the tools designed to inform and empower consumers, such as Web sites reporting hospital and physician price and quality information. More health plans, along with other private and public entities, have introduced or expanded such transparency initiatives over the last few years, but the number of programs providing actionable, provider-specific price and quality information remained quite limited.
  • Safety Net Caught More People. The economic recession led to more people needing low- or no-cost health care at the same time the downturn reduced states’ and communities’ financial ability to support these services. While demand for safety net services had been growing for a number of years as the rising cost of health insurance resulted in slimmer benefits or loss of coverage, safety net providers saw demand jump during the recession as even more people became uninsured or covered by Medicaid. Although challenged, safety net providers generally absorbed much of the increased demand and remained financially stable, often with the help of federal policy and stimulus funding that protected Medicaid eligibility and increased direct funding to providers.
  • Bracing for Health Reform. Providers, while positive about the potential to treat newly insured patients, were anxious about the prospect of inadequate reimbursements from Medicaid and from health plans offered through state insurance exchanges scheduled to come on line in 2014. They speculated that primary care physician supply, already tight in some markets, would likely be insufficient to handle additional demand from newly insured patients, especially if physicians are unwilling to treat patients because of low payment rates. Inadequate physician supply, in turn, could exacerbate existing pressures on ED capacity. Hospitals and physician groups also were exploring how to respond to expected Medicare payment reforms, including the introduction of ACOs and other forms of risk-based payment.

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The National Institute for Health Care Reform (NIHCR)is a nonpartisan, nonprofit 501 (c)(3)organization created by the International Union, UAW; Chrysler Group LLC; Ford Motor Company; and General Motors. Between 2009 and 2013, NIHCR contracted with the Center for Studying Health System Change (HSC) to conduct high-quality, objective research and policy analyses of the organization, financing and delivery of health care in the United States. HSC ceased operations on Dec. 31, 2013, after merging with Mathematica Policy Research, which assumed the HSC contract to complete NIHCR projects.