By: Paul Beebe

September 28, 2005, The Salt Lake Tribune

An unprecedented consolidation among hospitals and physician practices in the past decade is reversing the gains employers and managed-care companies made in the 1990s in applying the brakes to runaway health care costs, an influential health care expert said Wednesday.

And while consolidation appears to have little impact on health care quality, it has ignited a new round of exploding health insurance premiums that makes it harder for employers to provide insurance benefits to their workers, said David Dranove, an economics professor at Northwestern University.

"Most consolidations produce benefits to the consolidators, but harm consumers," Dranove said. "Firms that grow large through successful competition may eventually be shielded from competition and stop serving those customers that at one time they reached so well."

Dranove was brought to Salt Lake City by Regence BlueCross BlueShield, the University of Utah and the Salt Lake Chamber. He spoke to a large audience at Little America Hotel, including several members of a bipartisan legislative task force exploring the dominance of Intermountain Health Care in Utah's health care market and the way other providers interact with IHC.

Dranove refused to characterize the extent of competition that exists among health care providers in the state. But an attorney who represents Regence before the Privately Owned Health Care Organization Task Force said Dranove's appearance was meant to highlight the issues that prompted lawmakers to create the panel during the 2005 legislative session.

The task force will focus much of its work on investigating IHC's contracting arrangements in health insurance and health care markets, its tax-exempt status and business and financial practices. IHC is the state's largest health insurer and owns more than 55 percent of the state's hospital beds, according to Regence.

"It is important for us to help others to understand what the possible consequences and outcomes can be when competition is stifled and one organization is large enough where it basically controls competition," said Jennifer Cannaday, Regence's assistant vice president of legislative and regulatory affairs.

Numerous studies show health care costs in Utah are among the lowest in the country, while the quality of care is at the top, suggesting competition in the state is healthy, said Greg Poulsen, senior vice president of IHC.

"When Blue Cross says, 'well, little old us,' that's an implication that isn't true. They've got lots of resources and abilities," Poulsen said.

Dranove said legislators and business people should be skeptical about future health care consolidations. In the past 10 years, numerous hospitals have merged, physician practices have joined forces and hospitals have acquired physician practices, upending the market forces that kept health care costs largely in check between 1989 and 2000.

"Consolidation is rendering [those] market forces impotent," he said.