The leaves are beginning to fall, but health care costs are on the rise. This September, researchers looked at health care spending and costs with new studies on how consolidation impacts individual market premiums, spending under employer-sponsored health insurance, the effects of removing financial incentives for quality, and pharmaceutical reference pricing. With health care costs at the forefront of consumers’ minds, these new studies shed light on what contributes to America’s exorbitant health spending.

Scheffler, R., et al. Consolidation Trends in California’s Health Care System: Impacts on ACA Premiums and Outpatient Visit Prices. Health Affairs; September 1, 2018. Researchers analyzed California health care markets to identify “hot spots,” or regions with high degrees of provider consolidation, and measured the association between consolidation and marketplace premiums prices as well as specialty provider prices.

What It Finds

• The hospital markets in 41 counties with populations of less than 500,000 were considered highly concentrated during the study period, according to their Herfindahl-Hirschman Indices (HHI), a common measure of market concentration.
• Hospital-employed physicians made up 40 percent of the market in 2016, compared to 25 percent in 2010, a sign of increased vertical consolidation. This trend was associated with a 9 percent increase in specialist prices and 5 percent increase in primary care prices.
• In highly consolidated markets, vertical integration was associated with a 12 percent increase in Marketplace premiums.
• In general, 10 percent increases in hospital and insurer concentration were associated with 1.8 and 2 percent increases in Marketplace premiums, respectively. The association between hospital concentration and premiums was larger when a high percentage of physicians were working in hospital-owned practices in the rating area.

Why It Matters

National provider consolidation has been on researchers’ minds for decades. While most health systems and insurers cite cost savings and efficiency as a main argument for consolidation, researchers have consistently found that consolidation leads to higher prices without significant innovation. This study supports that research, showing a direct association between provider concentration (horizontal and vertical) and higher prices and premiums. Although The Federal Trade Commission and the Department of Justice have authority to challenge hospital mergers that significantly decrease competition, their authority has some significant limitations. Legislators and regulators should consider the impact of both vertical and horizontal consolidation on the cost of health care, and the downside impacts on consumers.

Frost, A., et al. Health Care Spending Under Employer-Sponsored Insurance: A 10-Year Retrospective. Health Affairs; September 19, 2018. Using national claims data from four national insurers via the Health Care Cost Institute, researchers were able to measure consumer spending, other than premiums, by individuals enrolled in employer-sponsored insurance (ESI) between 2007 and 2016.

What It Finds

• ESI enrollees experienced an average annual health care spending growth rate of 4.1 percent on costs associated with health services, other than premiums. Spending among enrollees increased 44 percent over the study period (23 percent after adjusting for inflation).
• Outpatient and professional services accounted for the majority of health care spending in both the beginning and end of the study, comprising 60 percent of spending in 2007 and 62 percent of spending in 2016.
• During the study period, outpatient services had the largest increase in spending at 64 percent (40 percent after adjusting for inflation).
• Total per capita out-of-pocket (OOP) spending increased 43 percent over the study period (22 percent after adjusting for inflation), with the largest increase in OOP spending on emergency room visits and a decrease in OOP spending on prescription drugs.

Why It Matters

Health care spending is among Americans’ top concerns. Most insured Americans are covered through their employer, and more and more of them are enrolled in high deductible plans that have higher out-of-pocket costs. Despite efforts to shift patients’ site of care to lower cost outpatient facilities, the study shows that consumers are generally footing the same percentage of the health care spending bill. Breaking down rising health care costs and how components of spending have shifted over time is helpful for policymakers and employers in figuring out the best ways to lower OOP costs for consumers.

Minchin, M., et al. Quality of Care in the United Kingdom after Removal of Financial Incentives. New England Journal of Medicine; September 6, 2018. Value-based purchasing arrangements have become increasingly popular in the United States, with proponents pointing to improved care coordination and quality of care. There are not definitive data on the comparative effects of financial incentives for meeting quality indicators, but the United Kingdom removed financial incentives for 40 of 121 quality indicators in 2014 to evaluate the impact on quality outcomes.

What It Finds

• Researchers analyzed performance on 12 twelve indicators for which financial incentives were removed and six indicators for which financial incentives remained; immediate reductions in the quality of care were seen across all 12 indicators with removed financial incentives.
• Quality reduction for indicators where financial incentives were removed was most drastic in indicators related to health advice, with electronic medical record (EMR) documentation of lifestyle counseling for patients with hypertension reduced 62.3 percent.
• Removing financial incentives was associated with reductions in laboratory testing and clinical outcomes, such as a 16.8 percent reduction cholesterol control in patients with stroke and transient ischemic attack (TIA)
• For the six indicators where incentives were maintained, there were no significant changes in documented quality in the three years after the financial incentives were removed for the other 12 indicators.

Why It Matters

In the U.S., many insurers and health care purchasers have pursed “pay for value” payment strategies in which providers are given financial rewards for improved quality and clinical outcomes. However, there is limited data on the effects of such financial incentives. This study shows a correlation between removing financial incentives and poorer performance on quality metrics.

Robinson, J. Pharmaceutical Reference Pricing: Does It Have a Future in the U.S.? Commonwealth Fund; September 10, 2018. Reference pricing is an arrangement in which an insurer identifies a maximum amount that it will spend to cover a product or service when there is wide price variation for available treatments or services. This study compares reference pricing to other cost-saving methods, such as tiered formularies and coinsurance, to determine which practice is most effective.

What It Finds

• After a national trust in the U.S. introduced reference pricing in outpatient drugs for its large group plan, the average price paid by the employer decreased 14 percent, while cost sharing for the plan’s enrollees increased 5.2 percent.
• In order for reference pricing to succeed in promoting price consciousness among consumers, consumers and physicians must have access to detailed, and consistently updated information of drug prices as well as quality (something that is especially scarce in the United States).
• Reference pricing was found to be more effective than tiered formularies in promoting adherence and compliance by patients.
• More comparative effectiveness research is needed in order to justify price points of pharmaceuticals, especially specialty drugs.

Why It Matters

Comparative effectiveness research (CER) on pharmaceutical pricing has been a point of political contention in the United States. But the information it generates is critical to the growing efforts by states, employers, and companies to use reference pricing as a way to reduce health care costs without sacrificing clinical quality. The ACA created the Patient-Centered Outcomes Research Institute (PCORI), an organization that studies comparative effectiveness in pharmaceuticals and other treatments but it is prohibited by statute from considering a treatment’s price in assessing its value relative to another treatment. Studies like this one help demonstrate why such a restriction on CER’s scope is shortsighted.