Hospitals and doctors: Is their role in soaring health care costs overlooked?

Trudy Lieberman is a veteran health care journalist and regular blogger for She tweets as @Trudy_Lieberman.

For most of the year now, the story for health care reporters has been the policy drama of repealing and replacing Obamacare. Meanwhile, apart from drug costs, the business side of health care has generated fewer headlines, although its impact on our nation’s economy and quality of life is arguably just as important.

I wanted to explore this less-covered part of the health care world and rang up Bob Herman, who is developing a health business beat for Axios, an online publication that launched earlier this year.  Much of what he reports can be adapted by local reporters who keep track of the medical business in their areas. “Covering the business of healthcare is so interesting,” Herman told me. “There should be more scrutiny and more criticism of it.”

While drug manufacturers and insurance companies are “easy targets,” he said, hospitals and doctors often get overlooked. “I’ve never really understood that,” Herman said. “That’s where so much of the money is.” Hospital care accounts for about one-third of the country’s health expenditures; physician services make up 20 percent, and contrary to public perception, prescription drugs account for just 10 percent.

How come doctors and hospitals don’t seem to attract as much attention?

“It’s hard to paint them as villains,” Herman says. “Politicians are just not going to go after hospitals, and doctors save lives.” President Trump pinpointed pharma and insurers last week saying “drug prices are out of control” and calling cost sharing subsidies paid to low income consumers who buy Obamacare policies a “total gift” to insurance companies. Because reporters get many of their stories from tracking politicians, and politicians often avoid doctors and hospitals as targets, these overlooked sources of health care spending may not surface in news stories. Nor are they likely to surface when a hospital engages in lucrative partnerships with local media organizations, particularly TV stations.

Hospitals and doctors also spend a lot of money protecting their interests–by not only giving to political campaigns but also on lobbying activities. The Center for Responsive Politics calculated that hospitals along with nursing homes spent more than $73 million just for lobbying activities so far in 2017, with the American Hospital Association giving the most. Health professional organizations representing physicians, pharmacists and other medical specialists spent $67 million with the American Medical Association at the top of the list. Pharmaceutical lobbying totals about $132 million–which is slightly less than what hospital and doctor groups spent combined.

What are the lobbyists trying to protect?

Some of the best stories lurk in digging up what all that lobbying is protecting and what it means means for the public. One angle worth exploring is tax breaks to hospitals.

Earlier this year we spotlighted the work of Politico’s Dan Diamond, who showed how the Cleveland Clinic prospers while the community in which it’s located has the highest medical need. He questioned whether the Clinic was spending enough in community benefits under an IRS regulation that grants hospitals freedom from paying taxes in exchange for giving back to their communities.

Herman himself challenged a report from the American Hospital Association that said the benefits that not-for-profit hospitals provide to their communities far outweigh foregone federal tax revenue. He interviewed his own experts who described holes in the AHA’s report. A big one was the omission of property taxes. Said one economist from Northwestern University whom Herman interviewed, not counting the value of the property tax break was “just a joke.” Not surprisingly, the AHA disagreed.

Hospitals buying up physician practices–why?

The opaque world of hospital pricing has received some much-needed scrutiny of late–for example in this podcast from Vox and investigations (like this one in New Orleans) spearheaded by ClearHealthCosts. I asked Herman about other ways local reporters could further examine area hospitals and doctors. Hospital consolidations and hospitals buying up physician practices are big ones, he suggested. When local hospitals merge, the story is often overlooked. Ask: How would it change competition in your area? What would it mean for the price of services? Explore why doctors want to be part of a hospital. What’s in it for them? Will doctors and hospitals have a say in the buying of drugs and medical devices? Will that present conflicts of interest? It’s worth pestering executives on how mergers would affect prices, Herman advised.

A recent study published in Health Affairs reported that further consolidation among providers would give them more leverage to negotiate higher prices with insurers. On the flip side, it found that when insurers have the leverage to negotiate lower prices, they may not share the savings with consumers in the form of lower prices and better benefits. That finding alone is enough for any reporter to start snooping and ask why.

The story of hospitals buying up physician practices is also not on many journalists’ radar, nor the FTC’s, for that matter. “Suddenly doctors become hospital employees and the record shows that costs go up when when physician practices become hospital-owned,” Herman said. Last year, the New York State Health Foundation reported that hospitals in New York with greater market share had higher prices. Herman advises pinning down doctors and hospitals on how a merger will improve patient care, or will it? When they give the “inevitable” answer that it will, ask how, he said.

Resources for investigating hospital finances

Be careful using the phrase “value-based care”–the current buzz phrase in healthcare. It’s meant to describe arrangements where physicians are paid for the quality of care they provide rather than quantity of services delivered. “In theory value-based care means better care for less money,” Herman said. But does it? How would it affect premiums? How would it make care simpler and better?  Proponents of value-based care want you to believe providers and insurers are on the same page, but many are not.

A hospital’s financials are the key to learning where a hospital or hospital system is headed financially. Herman recommends that reporters familiarize themselves with a database called EMMA (Electronic Municipal Market Access), a portal run by the Municipal Securities Rulemaking Board, where securities dealers, municipal advisers, and other organizations, like not-for-profit hospital systems that issue bonds, must file documents. There you can find such information as financial disclosures, changes to credit ratings, and other important financial news about a hospital. “Any journalists have a field day with it,” Herman said, adding that’s how he figured out that  the San Francisco-based hospital chain Dignity Health was reaping higher revenues due to consolidated joint ventures and rate increases among other reasons.

Hidden story gems lurk in payment rules and regulations at the Centers for Medicare & Medicaid Services (CMS). The fine print of rule-making can be boring. Reporters may need help in understanding them, and these days CMS doesn’t offer much help and rarely provides an agency source to explain what they’re doing. But how doctors will get paid is very important to patients and everyone else who will use the health system someday.

A pending rule from CMS and now awaiting approval at the Office of Management and Budget would change the way medical equipment providers are paid and boost their reimbursements. Medicare currently uses a competitive bidding process, which lowered the rates across the board. Suppliers didn’t like it, and the proposed rule would use a different payment arrangement based partly on competitive bidding and partly on what the higher rates used to be. How could local reporters tackle this one? Talk to medical equipment suppliers in your community and understand how they get paid now and if the rule takes effect.

How will that affect how doctors and hospitals who will have to buy more expensive equipment and pass the cost along to patients? It also means Medicare will pay more at a time when politicians want seniors and disabled people on Medicare to pay more for their benefits. Will they have to pay higher premiums? What do commercial insurers pay for medical equipment now and in the future?

Where can you learn about these proposed rules? The Federal Register is the place to begin, and reporters can sign up for alerts that a new rule is being proposed. Another stop should be the OMB website to see what’s on the docket for review. Herman also recommends the Office of Information and Regulatory Affairs, or OIRA. “It sounds boring and mind-numbing but can be a treasure trove of ideas.” Herman says he was tipped off to the medical equipment rule by checking OIRA.

Medicare reimbursements affect healthcare spending. Health insurance premiums are related to payment policies Medicare pursues. “Everyone has a horse in this race,” says Herman, “That horse is getting paid as much as it can.”

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Comments (6)

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Flem Rustic

October 26, 2017 at 3:52 pm

A big thank you! Its time more focus is given to WHAT we pay for healthcare, rather than debate who pays. When is the lay media going to catch on

Charles L Carter

October 27, 2017 at 2:35 am

As physician, I couldn’t agree more. Truly an excellent article. Payment rules and structure reward specialty care over primary care, encourage more costs with little worth, and higher payments to those who are best at gaming the system. Of course that’s just a start.

    Kipp Webb

    October 29, 2017 at 8:43 am

    Excellent article and hopefully will start to open more eyes. As a physician I’ve witnessed first hand practices being bought up by hospitals, prices doubling immediately and establishment of a local monopoly. You can also find a hospitals financials online as the not for profit hospitals file a 990 with the IRS which is posted online for all these hospitals. Those documents are quite disturbing. There should be no debate about how to pay for healthcare until there is careful scrutiny on what we’re paying for. Roughly 20% of the US’s GDP goes to healthcare costs compared to around 10-15% for other countries matched to our demographics. So let’s get down to 10% of the GDP and then figure out how to pay for it? Time to open everything up as this crisis is crippling our country. The concept in the US of “what the market will bare” mentality for healthcare costs is ridiculous as the financial burden is way over the top for us.

Charles Dinerstein

October 30, 2017 at 5:40 am

Disclaimer – I am a physician. That said, most of the article discusses hospitals, not physician payment. Physicians control costs through their pens, prescribing tests, medications, and treatments. The cost of those items is controlled by the federal government through it CMS fee setting, the industry benchmark, and the insurance companies. I can make more money by increasing volume which does not scale, or by increasing complexity of care, which is monitored, at least by CMS. Physicians are rapidly being reduced to workers and have less and less to do with actual health care costs over time.

rob oliver

October 30, 2017 at 7:22 am

This was just a baffling take on the topic which missed the ball. The main drivers of the market forces mismatch in healthcare are 1) the separation of the patient from many of the “first dollar” direct costs of care and 2) the distortion of a functioning market by Medicare price fixing, which affects the prices all other carriers set.

If patients have little incentive to shop in terms of out of pocket cost, they don’t. We’ve seen multiple examples of where patients can control costs on their side when they pay themselves (cosmetic surgery, Lasik surgery, direct primary care, cash prices for imaging centers, cash prices for orthopedic and general surgery). Likewise, the market making power of Medicare and the illusion of negotiated discounts by insurers is what produces the whole Kabuki theatre of a hospital bill.

About the only thing with costs physician’s can now be pegged with is being loose gatekeepers with expensive imaging, meds, and services. The large $$$ going into the HC budget are in fact not trickling down to doctors themselves as real income is down almost 50% for many specialties from the early 1980’s without even adjusting for inflation

Roy Loewens

October 30, 2017 at 12:22 pm

You missed the main reason why hospitals are buying up physician practices- please google “site-neutral payments.”