- A recent Health Affairs article was able to identify factors associated with higher and lower hospital profitability based on Medicare cost report data.
- Those factors should be considered in discussions around how to improve the economic performance of the U.S. healthcare system, according to a new Health Affairs blog by Glenn Melnick of the University of Southern California.
- Some of the factors involve trends that are accelerating in both hospital and health insurance markets.
The majority of profitable hospitals earn more based on their services to commercially insured patients and their negotiated prices with those insurers, the blog noted, while business from Medicare and Medicaid, even though they are largest payers, lacks characteristics that hospitals can control.
Among the most relevant trends is hospital consolidation, which reduces regional competition that previously stymied price growth and lends the system greater negotioating power with insurers. Two profitability factors are borne of this trend: Regional power and system affiliation. Mergers increasingly involve hospitals in different markets, the blog added, because non-local mergers have not been subject to the same anti-trust scrutiny.
"As a result, hospitals in some instances are able to join systems, gain market power, and raise their prices without necessarily improving quality or service," Melnick wrote.
A negative association was identified between hospital profitability and two major factors: The market share of the state’s largest insurer and HMO penetration in the market, the blog noted, adding the wave of completed and pending health insurance mergers is eroding hospitals' former upper hand. The effects of insurer consolidation, meanwhile, may be diluted through the arrival of new market entrants and competition from emerging hospital system health plans.
Going forward, further transparency and reporting will be necessary to truly monitor the impacts of industry trends, Melnick suggested, noting that hospital-level data alone can no longer provide a complete picture in this age of larger and more complicated healthcare organizations.