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How employers can reduce costs as healthcare consolidates

As an employer, how can you lower costs and provide better healthcare for employees in monopolized markets?

How employers can reduce costs as healthcare consolidates
[bnenin/Adobe Stock]

On February 14, 2022, six residents of Connecticut filed a class-action lawsuit accusing Hartford HealthCare (HHC), a hospital network, of “anticompetitive conduct.” They allege that HHC, using its monopoly power, “has forced patients and employers in Connecticut to pay higher prices for routine services that are often available at other hospitals only minutes away for substantially less.”

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Consolidation has given healthcare systems unprecedented power over payers, employers, and employees. Besides a brief statement sent to Axios, HHC has not refuted the lawsuit’s claims.

Whether or not HHC is broken apart under Connecticut’s antitrust laws, rising prices and anticompetitive behavior will persist in American healthcare. Let’s consider in more detail the mechanics of healthcare consolidation, some countermeasures available to employers, and the federal policies that could restore healthy market dynamics.

THE MECHANICS OF A HEALTHCARE MONOPOLY 

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In 2014, the Federal Trade Commission’s (FTC) Director of the Bureau of Economics warned that when hospitals lack competition, their prices surge by as much as 40% to 50%. This estimate comes to life in the lawsuit against HHC. To be clear, I’m critiquing observed business decisions, not healthcare practitioners who, overloaded by COVID-19 and staff shortages, are doing their best.

American healthcare costs have skyrocketed—from $394 billion in 1970 (in 2020 dollars) to over $4.1 trillion in 2020, according to Peterson-KFF’s Health System Tracker. Even though more than 90% of Americans have health insurance, 23 million Americans—about one in 10 adults—owe more than $250 in medical debt, says Peterson-KFF.

How does healthcare consolidation fuel higher costs? A system gains or already has control over a “must-have facility,” like Hartford Hospital in HHC’s case. Unless payers contract with the conglomerate, their plans aren’t commercially viable. Because the must-have facility has leverage, it dictates the terms for all stakeholders and often employs three tools to do so.

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• All-or-nothing contracts: Payers either contract with all facilities or none—they can’t pick and choose based on value.

• Anti-steering contracts: Payers cannot lower out-of-pocket costs at facilities that demonstrate better safety and quality for the dollar.

• Non-compete contracts: Physicians must agree not to offer services through another network or open an independent practice nearby. If providers refer patients to a better, out-of-system facility, they may be penalized.

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A skeptical reader might argue that market dominance isn’t always bad. Haven’t Big Tech companies brought down prices in their respective markets? Well, healthcare is a different beast.

THE IMPACT ON PRICING AND CARE 

Although a healthcare conglomerate could use its dominance to pass on savings to employers, HHC is geographically constrained (and allegedly nonprofit). Unless it broadens beyond Connecticut, it must maximize revenue with a population that is barely growing. HHC, the lawsuit says, charges more than any other system in the area yet has lower safety ratings and quality scores.

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For example, according to the lawsuit against HHC, a colonoscopy costs $2,200 at HHC’s Hartford Hospital, while the nearby St. Francis Hospital only charges $1,800. Likewise, a blood transfusion is about four times more expensive at Hartford Hospital than at St. Francis. Level 1 ER visits cost 50% more at HHC than at St. Francis, and Level 5 ER visits are 300% more expensive.

No wonder families in western Massachusetts, just beyond HHC’s domain, pay 30% lower health insurance premiums, and families across the border in Rhode Island pay 35% less. Payers pass the elevated costs to Connecticut employers and employees in the form of higher premiums, deductibles, and copays.

HOW EMPLOYERS CAN RESPOND

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As an employer, how can you lower costs and provide better healthcare for employees in monopolized markets? These general recommendations should be applied based on local data and analytics.

First, enterprises should consider direct contracts with healthcare systems. The enterprise assumes responsibility for paying medical claims as a self-insured organization. The upside, advocate say, is lower pricing, fewer duplicative procedures, and better digital record keeping. The downsides? For certain services and specialties, a competitor network might offer better value, and direct contracting inherently limits choice—unless the enterprise is big enough to secure multiple direct contracts.

Second, employers should incorporate carve-out or independent “center of excellence” (COE) programs—specialized divisions within healthcare organizations that aggregate interdisciplinary experts and resources—into their plans. COE programs usually address serious conditions (e.g., cancer or heart disease) and have the potential to introduce “cost savings, efficiencies, economies of scale, and other value-laden avenues…,” says one researcher. A plan can incentivize employees to use a COE program with lower out-of-pocket costs. Many employers even cover lodging and travel for COE care because the value proposition (relative to alternatives) is so strong.

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Third, employers should double down on virtual care, which costs less than in-person appointments. Even when a virtual consult can’t provide a solution, it increases the odds that employees seek out the right provider and avoid high-cost options, like an ER visit.

FROM STOPGAP MEASURES TO POLICY OVERHAULS

In fairness, direct contracting, COE programs, and virtual care will not solve the pervasive dysfunctions in American healthcare. Change is needed at the federal level.

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Through the No Surprises Act, Congress has mandated total transparency in the contracts between providers and payers. It’s a good start. A healthy marketplace cannot exist when participants wield opacity as a pricing weapon. Additionally, we need precision research on the impacts of consolidation. Thankfully, the FTC Bureau of Economics recently ordered six payers to provide data that will enable it to study just that.

While antitrust action may help Connecticut employers and employees eventually, it alone cannot heal our healthcare system. We can attempt to limit healthcare consolidation, but without more extensive reforms, prices will continue to rise, and patients and employers will feel the squeeze.


David Vivero is the CEO of Amino Health, a digital healthcare guidance tool helping patients find high-quality in-network care.

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