Better Solutions for Healthcare

STAT News: Hospitals gear up to expand market power, raise prices in 2023

SAN FRANCISCO — More than a dozen of the country’s large not-for-profit hospital systems descended on this year’s J.P. Morgan Healthcare Conference with a subtle but clear message for bankers and municipal investors: Higher costs in 2022 slowed them down, but they are adamant about increasing revenue by expanding their footprints and hiking prices.

“Growth is really important to us,” said Rob McMurray, CFO of ChristianaCare, a hospital system headquartered in Delaware that has $2.6 billion of annual revenue and controls large swaths of the state’s inpatient and outpatient services.

Growth in the hospital industry takes several forms. Mega-mergers have caught a lot of attention. But hospitals also are building or acquiring new facilities, mostly on the outpatient side, like urgent care or surgery centers. Or they are attracting new physicians to bulk up profitable specialties like cardiology or orthopedics. Executives anticipate those moves will bolster their market share and make it more difficult for health insurers to exclude them from networks.

However, the simplest way to grow is by raising prices on commercial insurers and workers — and both inflation and market power will continue to give hospitals an edge in negotiation talks.

“As we go back to the table this year and next year, we will be asking the payers to pay their fair share,” Intermountain Healthcare CFO Janie Wade said during her system’s presentation. She added Intermountain will be “asking for increases above what we have historically asked for.”

The messaging at the conference from hospital executives comes as Americans still struggle to pay their hospital and doctor bills. Many patients and families who are saddled with debt continue to face aggressive collection practices or even lawsuits from providers. And those medical bills are based on the highest prices in the world — prices that vary wildly based on where someone lives and the type of insurance one has.

Ascension, a massive Catholic hospital system, appeared to be aware of the latest scrutiny of its and the industry’s practices. CEO Joseph Impicciche made the effort to say the “most important number” within Ascension’s financials is the $2.3 billion of care it provides to people living in poverty — a number that was not explained. Minutes later, CFO Elizabeth Foshage highlighted Ascension’s $18 billion of cash and investments and positive reviews from credit ratings agencies.

Hospitals already signaled last year that, in light of inflation, they would be pushing insurers for higher prices. Because hospitals and insurers negotiate in multiyear cycles, that means inflation will creep into the next round of talks happening this year for 2024.

“We’re beginning a dialogue with our payers right now around evaluating bigger increases. We don’t think that this is going to be antagonistic,” Tampa General Hospital CEO John Couris said in an interview. “The payers have been receptive to the dialogue.”

Hospitals enjoyed a historically good financial year in 2021, and also were propped up in 2020 with federal bailout dollars. But they feel they have room to push again for higher rates because insurers, especially the major publicly traded ones, reaped windfalls throughout the Covid-19 pandemic.

“Lots of people put off lots of different services [during the pandemic]. They were still paying the premiums,” Couris said. “So there was a reservoir of cash that was built up in the payer space. And the question that I have to the payers is, where is that? Help us understand where that reservoir is and how you reconcile the fact that you don’t want to give us a slightly bigger increase.”

Research shows hospitals usually win at the negotiating table if they have a dominating presence in their respective markets. Several tax-exempt systems at JPM said they are focused on building up that muscle in existing markets to solidify their monopoly or oligopoly status.

“We need to be either broader or deeper in markets that we currently serve,” CommonSpirit Health CEO Wright Lassiter said.

AdventHealth is a faith-based hospital system with $15 billion of annual revenue and cash flow margins around 13%. The organization continues to build more hospital beds in Florida because “there’s so many people moving to the state,” CEO Terry Shaw said.

“We are well-positioned in some key growth markets,” added AdventHealth CFO Paul Rathbun said. “We have strong plans to return to our historical margins.”

Baylor Scott & White Health operates hospitals and clinics in many areas of Texas with growing, affluent, commercially insured populations, which CFO Jennifer Mitzner characterized as a “very strong tailwind.” And the system plans on expanding wherever new employers are moving.

“The opportunities in Texas are quite great,” Mitzner said.

Outside of merging hospital systems, which has attracted more antitrust scrutiny, expanding market share still heavily revolves around buying and controlling physicians. Ascension touted several of those types of investments. Over the past few years, Ascension poured $73 million in Regent Surgical Health, one of the largest private operators of ambulatory surgery centers, and $65 million in U.S. Acute Care Solutions, a physician staffing company that was recently part-owned by private equity firm Welsh, Carson, Anderson & Stowe.

Physicians are so vital to a hospital’s financial picture because they direct the traffic. That relationship is a major reason why hospitals employed more than half of physicians by the start of 2022.

Roughly half of all physicians in Indiana have done some level of training with Indiana University Health, CEO Dennis Murphy said. That’s created loyalty, which makes it easier to attract physicians and ensure those lucrative referrals stay within the hospital system.

“When people talk about leakage in health care, we like to say we’re the one they’re leaking to,” Murphy said. Research has also shown that hospital acquisitions of physician clinics have greatly increased costs for both government programs and workplace insurance.

J.P. Morgan CEO Jamie Dimon addressed hospital executives and municipal investors at the Four Seasons hotel in San Francisco during the conference. Media were not allowed to enter.


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