Back To The Future? New Cost and Access Challenges Emerge

Originally published as Issue Brief No. 35 by the Center for Studying Health System Change (HSC), February 2001. Authors: Cara S. Lesser, Paul B. Ginsburg. HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Health Care Markets in Transition: Initial Findings from HSC's Third Round of Site Visits

Every two years, HSC researchers interviewed health care leaders in 12 nationally representative communities to assess changes in local health care markets. The third round of site visits, then underway, was revealing significant shifts in health care delivery, financing, and access that would shape the industry for years to come. This Issue Brief presented the initial cross-cutting findings from the 2000-2001 visits.

The Managed Care Backlash Reshapes Markets

Across the 12 communities, the most prominent trend was the continued retreat from tight managed care. Health plans were loosening utilization controls, broadening provider networks, and offering more open-access products in response to consumer and physician dissatisfaction. Gatekeeping requirements were weakened or eliminated, giving patients more direct access to specialists. While these changes were popular with consumers and physicians, they were also contributing to higher costs as the utilization restraints that had held spending in check during the mid-1990s were relaxed.

Provider Consolidation Accelerates

Hospital consolidation was accelerating in most of the tracked communities. Mergers and acquisitions were creating larger hospital systems with greater negotiating leverage against health plans. Some of these combinations were driven by genuine efforts to improve efficiency and coordinate care, but many appeared motivated primarily by the desire to increase market power and pricing leverage. The growing concentration of hospital markets was starting to produce measurable price increases, reversing the trend of the mid-1990s when excess hospital capacity and aggressive managed care had held provider prices in check. Physician consolidation was also underway, with hospitals acquiring physician practices and large multi-specialty groups gaining market share.

Cost Pressures Return

The combination of loosened managed care controls and growing provider market power was producing a return of significant cost pressures. Premium increases had accelerated sharply, and employers were beginning to respond with higher cost-sharing for employees, increased use of pharmacy benefit management tools, and exploration of new benefit designs. The managed care cost savings of the mid-1990s appeared to be largely exhausted, and the fundamental drivers of health care spending growth -- new technology, aging, chronic disease, and the fee-for-service payment structure -- were reasserting themselves.

Access Concerns Grow

Despite the strong economy, access to care was deteriorating for some populations. The number of uninsured Americans continued to grow, driven by the rising cost of coverage and the shift of costs to employees. Safety-net providers in many communities reported growing demand without corresponding increases in funding. Primary care physician shortages were emerging as a concern in several markets, and the communities were grappling with how to maintain access to essential services as the health care cost curve began to bend upward again.

Sources and Further Reading

This Issue Brief presented initial findings from HSC's third round of site visits to 12 nationally representative communities, conducted in 2000-2001. The research was led by Cara S. Lesser and Paul B. Ginsburg. Individual community reports for each site visit round provided detailed market-level analysis. The Community Tracking Study was funded by the Robert Wood Johnson Foundation.