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Hospitals, Insurers Trade Barbs over Consolidation

By Rebecca Adams, CQ HealthBeat Associate Editor

October 18, 2013 -- The historical tension between hospital and insurance executives seems to be exacerbated by current congressional efforts to trim health care spending. A top hospital lobbyist came out swinging late last week in response to comments that he said attacked the industry he represents.

Chip Kahn, president and CEO of the Federation of American Hospitals, took exception to a comment by America's Health Insurance Plans (AHIP) President and CEO Karen Ignagni last week. In an interview with reporters after she addressed an industry conference, Ignagni called hospital consolidation "dangerous," adding, "I say dangerous because it affects the prices that are being charged and it makes it very difficult to negotiate affordable premiums."

Ignagni also invited scrutiny of hospital prices by saying, "The focus so far has been on the premiums charged in exchanges but premiums are based on the underlying cost of hospital care, pharmaceuticals and other services."

Kahn said in an interview last week that he was "taken aback" by Ignagni's choice of words.

"The insurance industry seems to be on this jihad regarding hospital consolidation," said Kahn. "It's the proverbial pot calling the kettle black. There is a lot of concentration in that industry."

Kahn pointed to American Medical Association (AMA) statistics that showed that in nine states, one insurer dominates the market.

The backdrop for this war of words is the financial pressure that both industries face and the concerns that each sector has about ongoing budget discussions in Congress. Both hospitals and insurers want to protect their companies from payment cuts that would be used, for example, to stave off Medicare reductions for physicians or to lower the budget deficit.

Insurers also are trying to convince lawmakers to enact legislation that would delay by two years a 2.3 percent tax on plan premiums that starts in January. Such a delay would cost $15 billion at a time when Congress is trying to go in the opposite direction by finding ways to save money.

Consolidation has been an issue throughout the health care industry, affecting both insurers and hospitals. It is in each industry's interest to convince lawmakers that the other is to blame for high health care spending and could withstand further Medicare cuts.

Kahn represents for-profit hospitals. Officials at the American Hospital Association (AHA), which represents for-profit and not-for-profit medical facilities, supported Kahn's view.

"It is not hospital prices that are driving the rise in insurance premiums," AHA spokesperson Alicia Mitchell said in an email. "Hospital price growth is at the lowest in more than a decade. Hospitals are responding to private sector and government policies to provide more coordinated and efficient health care by, among other strategies, partnering with others. Sometimes these partnerships involve mergers and acquisitions, which are subject to strong oversight at the federal and state level."

An AHIP official who was told of Kahn's comments repeated Ignagni's argument. "As the country tries to bring down health care costs, there's got to be a much greater focus on prices, and consolidation is one of the bigger drivers of price increases," said spokesman Robert Zirkelbach.

Kahn acknowledged that each side is stepping up its advocacy campaign as a bipartisan congressional panel begins its work to find budgetary savings. The lawmakers are supposed to reach an agreement by Dec. 13, well before the current continuing resolution (HR 2775) to fund the government expires on Jan. 15.

"I think obviously they want to get rid of the health insurance tax and want to protect themselves from Medicare Advantage cuts" to managed care plans that cover seniors and other beneficiaries, said Kahn. "So instead of addressing their issues directly, it's easier to create a villain. To me, it's bizarre to look at hospitals as villains. I don't know how many insurers' corporate offices people would head to if they have chest pains."

The fault lines between the two powerful groups will be evident in the coming months as each side tries to convince lawmakers that they should not be a budgetary target.

Kahn and Ignagni know each other well. Kahn represented the insurance industry until 2003 as the leader of the Health Insurance Association of America. Ignagni was the leader of a rival trade association for insurers. When the two groups merged a decade ago, Ignagni remained at the helm of the combined group.

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