Study: Healthcare costs continue to rise

While hospitals and physicians are using new-found bargaining clout to win payment increases from health plans, increased consumer demand fueled by the managed care backlash is hampering health plans' cost-control efforts, according to initial findings from the Washington-based Center for Studying Health System Change's latest round of community site visits.

"As health plans lighten up on efforts to control the use of healthcare services, costs are increasing again," HSC President Paul B. Ginsburg said. "In some ways, it's 'back to the future' of the late '80s and early '90s, except this time around, purchasers don't have the promise of managed care to help keep costs in check."

For consumers, these trends portend rising costs, fewer plan choices and considerable turmoil. Some of those who receive coverage through small firms are already facing disruptions as their employers switch plans and reduce benefits.

More findings

The site visits also revealed that:

•Â Managed care is losing power to control costs as health plans respond to consumer demand for less restrictive insurance products. To restore profitability, plans are passing on significant premium increases to purchasers and exiting lines of business that have become unprofitable, especially Medicare and Medicaid.

•Â Extensive consolidation has increased hospitals' negotiating leverage with health plans, allowing some hospitals to win significant payment increases. Some physicians are also demanding and winning higher health plan payments.

•Â Many hospitals are struggling with inpatient capacity constraints after reducing operating costs to respond to Medicare cuts and health plan demands for discounted payments. Growing demand for inpatient services and a severe nursing shortage are also contributing to capacity problems.

•Â Tensions between physicians and hospitals are escalating as competition to provide high-profit specialty services heats up. And as the number of physician-owned facilities increases, hospitals face the loss of profitable specialty services, such as cardiac care, that cross-subsidize less profitable services such as emergency care. Additionally, the increase in physician-owned facilities threatens to increase utilization of services at the same time health plans' ability to control costs is waning.

•Â Increased provider clout and the move away from tightly managed care have led to a precipitous drop in risk-based contracting, eroding a key cost-control mechanism. In some markets, providers' willingness to walk away from health plan contracts has created network instability and left consumers with fewer provider choices or higher out-of-pocket costs to see providers who are no longer in their plans' networks.

•Â Health plan premium increases have gone largely uncontested by large employers who, for now, are reluctant to disrupt workers' coverage in a competitive labor market. Some small employers, however, are responding to steep premium increases by switching plans, dropping dependent coverage or dropping coverage altogether.

"So far, the reluctance of large employers to significantly change benefits has insulated many consumers from increased costs," said Cara Lesser, HSC director of site visits. "At the same time, plans' responsiveness to the managed care backlash has generally given consumers greater provider choice and plan flexibility." PR