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Politicians' Anthem anger may overlook 'elephant in the room'

California politicians lined up to take their shots at Anthem Blue Cross over its plan to boost rate increases by 39 percent in recent weeks. 

health care reform, anthem blue cross

But a prominent voice (and one who is not running for office) emerged this week questioning whether the pitchfork-pumping is directed at the only culprit of health care cost increases.

Quickly, a recap on politician's positions on Anthemgate: Governor candidate Steve Poizner announced possible fines of millions over the company’s failure to pay medical claims. Governor candidate Jerry Brown made wide-ranging disclosures about an investigation his office is pursuing.

And Assemblyman Dave Jones, D-Sacramento, a candidate for insurance commissioner, held a hearing in which he asked company executives: “Have you no shame?” 

But Uwe Reinhardt, something of a rock star among health economists, told the Milwaukee Journal Sentinel that the blame for sky-rocketing health care costs does not lie entirely at the feet of insurers.

"You've got to have a villain," said Uwe Reinhardt, a health economist at Princeton University. "Beating up on hospitals is not a good thing because people generally like their hospital. Beating up on doctors is not a good thing because people usually like their doctor. But no one likes their insurance company."

Focusing on insurance rates, he argues, misses the point.

"What really drives it is the cost trend of health care, which is composed in part of utilization and in part of prices," Reinhardt said. "In our market-driven system, a doctor or hospital essentially charges the maximum they can get."

Utilization – or how many medical treatments and drugs and tests we get – is a fascinating topic that's explored in a book I recently read. Pick up Overtreated by former Newsweek reporter Shannon Brownlee if you're curious about the research and anecdotes that suggest that some Americans get too much health care.

Reinhardt's other idea about doctor and hospital market clout, though, seems particularly pressing in California. A recent study in the journal Health Affairs found that the cost increases may be driven by some hospitals’ and doctors groups’ bargaining power, at least in the Golden State.

Researchers Robert Berenson and Paul Ginsburg called the phenomenon an “elephant in the room,” and wrote that other scholars have noted 10 percent annual growth in hospital prices that they deemed “something of a mystery.” 

The Health Affairs report noted that the finding is even more mysterious, considering that other data suggest that hospital costs have only gone up by about half that much.

Perhaps the most interesting anecdote in the study is about one Los Angeles hospital, Cedars Sinai, that seems to have movie stars driving its market clout as a “must-have” hospital for every insurance plan to offer enrollees:

A common basis for "must-have" status is reputation – lodged either in the hospital or physician group overall or with particular hospital service lines. For example, Los Angeles respondents agreed that Cedars-Sinai Medical Center is a "must-have." Asked why Cedars did not engage in mergers and acquisitions to become a horizontally integrated system, as is common in northern California, a respondent from another area hospital suggested that Cedars can say, "Screw it; we have a strong marketing arm and the [movie] actors, let’s grow on campus and they will come to us." As a result, according to another respondent, "Cedars has the highest rates in the world.... The hospitals down the street have no market power. They have to fight for every penny."

I took a minute to peruse hospital financing data maintained by the Statewide Office of Hospital Planning and Development to see if it shed any light on what seems like gossip about Cedars. It’s not, though.

The hospital had the largest profit margin of any single hospital in the state in 2008, at $173 million.

No one’s asking the hospital's managers, though, if they have any shame, except, of course, for the folks at health insurance companies, as a reporter for the American Medical Association wrote.

In defending the industry, Karen Ignagni, president and CEO of the health insurance trade group America's Health Insurance Plans, along with WellPoint representatives, repeatedly cited "underlying health costs" as the driver of health insurance premiums. Ignagni cited cases of hospitals and doctors asking insurers for 40 percent to 50 percent increases in payment rates this year.

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The Health Affairs report noted that the finding is even more mysterious, considering that other data suggest that hospital costs have only gone up by about half that much. Pole barn prices

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