Health costs quietly rise in New York State as hospitals buy more private practices

ALBANY — Many New Yorkers are paying more for checkups, sick visits and outpatient procedures at their longtime family doctor’s office and might not even know it.

That’s because hospitals are buying private practices and then charging patients, their health insurance companies and the state Medicare system a much higher hospital rate for the same care, according to interviews and documents. Under Medicare and through negotiations with private insurance companies, hospitals have long been paid at a higher rate than private practices, to reflect added overhead costs at hospitals such as staffing emergency rooms and other services. 

The State Legislature enabled the purchases a decade ago to help hospitals — which are not-for-profit entities — to diversify so they can survive financially and continue to serve their communities. While hospitals say they are providing better, more convenient care, some state legislators, consumers and health insurers say the trend is costly.

The issue is drawing more attention in the state and nationally, where legislative proposals would require comparable pricing between hospital-owned outpatient offices and independent practices. Meanwhile, hospitals such as Northwell Health on Long Island continue to gobble up private practices, independent clinics, blood labs, independent providers of services such as colonoscopies and imaging and even smaller community hospitals.

As large hospitals expand, they can charge a hospital rate that is estimated at 60% more than the rates paid to independent practices, clinics and providers for the same procedures, according to a Congressional Budget Office study.

"The impact on the consumer — the patient — could be significant depending on the insurance plan," said Blair Horner, of the New York Public Interest Research Group. "Hospital conglomerates are like Pac-Man, eating up all the private practices."

Under Medicare, the state coverage for older and disabled New Yorkers, hospitals typically charge two to four times more than at an independent practice, according to the nonpartisan Actuarial Research Group, based outside Washington.

The lower rates paid by insurance companies to independent practices compared with hospitals — partly reflected in premiums and copays — vary widely by the insurance companies, researchers said.

Benefits of consolidation

Hospitals argue the consolidation of services strengthens health care as communities become more closely integrated with the resources of hospitals. Bigger groups can also have a greater voice in negotiating prices with drug companies and can negotiate lower malpractice insurance premiums.

As for physicians, many choose to sell their traditional practices to focus more on providing care by passing the increasing bureaucracy of providing medical care to hospital administrators.

On Long Island, just 59 of Northwell Health’s 950 outpatient sites charge the higher hospital rates, said Dennis Whalen, senior vice president for state government affairs; and Jeffrey Kraut, executive vice president for strategy.

"We understand what the arguments are and there is an inherent cost of providing this," Whalen said. But he added, "We accept all comers, regardless of ability to pay, and in some areas we are the treatment center of last resort."

Whalen said Northwell has often acquired small hospitals and other health care facilities that might otherwise face closure due to weak finances.

But such expansion reduces competition on prices and care giving and gives an advantage to large hospital groups, said Bill Hammond, senior fellow for health policy at the Empire Center for Public Policy think tank in Albany.

"The logic has been that the hospitals have a lot of overhead costs, so hospitals build the overhead in to the price for services," Hammond said in an interview. But "people ask, ‘Why should we paying a higher price for the same service?’"

"Hospital are becoming mini-monopolies in their area," Hammond said.

Hospital groups also can prescribe the workload and time a physician sees a patient as well as direct physicians to use the group’s laboratories, imaging sites and other assets. Some physicians warn this limits the independence of doctors to choose what they feel is best for patients.

"I think patients just don’t know and they should be aware when they go to a hospital-based system," said David Eagle, of the New York Cancer and Blood Specialists practice, with an office in Patchogue. "They will likely pay a facilities fee charge by hospitals and an increased copay amount that can land on patients."

He said some copays have risen by more than $200.

Loss of independence

Eagle said "it’s fine to have different models," but he worries the days of the independent physician making independent decisions for care may be numbered if public policy doesn’t level the playing field with hospital systems.

"Independent physician decision-making is very important," Eagle said in an interview. "Hospitals can either directly or indirectly mandate referrals ... to direct patients to the hospital network. Or they can put substantial pressure on the doctors to refer that way. That’s getting in the way of physicians’ judgment and the patients aren't necessarily aware of the decisions that are made."

Health insurers say that concern adds up for their customers.

"These types of consolidations, where more and more of a region’s doctors work for the same hospital or health system, are leading to higher heath care costs," said Eric Linzer, CEO of the New York Health Plan Association, which represents health insurers. "They can control referrals, they can demand higher payments and that means higher premiums for everyone."

Hospitals, however, say the higher costs for hospital outpatient departments, or HOPDs, is necessary.

"In some cases, HOPDs receive higher payments compared to other outpatient providers due to the higher costs associated with operating them," said Janae Quackenbush, of the Healthcare Association of New York State, which represents public hospitals and health systems statewide.

But there is a benefit to that cost, Quackenbush said.

Hospital-owned practices "take care of more clinically complex and vulnerable populations, can provide care that other outpatient providers do not and must comply with more regulatory requirements than independent practices," she said. That includes taking on more Medicare patients that private practices may not accept. Hospital-owned practices can also be more integrated with the greater resources of the hospital.

The Greater New York Hospital Association, which also represents hospitals, didn't respond to a request for comment.

New York proposal

A state legislative proposal seeks to make payments "site neutral," so that a service provided by a hospital group would be paid at the same rate as an independent practice, clinic or lab. The state bill would also cap prices for routine procedures between the cost charged by independent doctor’s offices and hospitals.

Adoption of site neutral costs would save New York State $1.4 billion a year in health care costs and save New Yorkers $213 million a year in out-of-pocket spending such as co-payments, according to a Brown University study.

The bill has faced strong opposition from hospital groups. Despite powerful sponsors, the bill hasn’t moved since it was introduced in January. It also won’t likely advance before the session is scheduled to end on June 17.

Meanwhile, the state budget adopted by Gov. Kathy Hochul and the Legislature earlier this month went the other way and increased funding for "hospital outpatient services."

State lobbying records show the bill has faced opposition from groups including the Greater New York Health Care Facilities Association, the Healthcare Association of New York and large hospital groups.

The Greater New York Hospital Association also is among the biggest contributors to political campaigns, donating $425,000 to Democratic campaign committees and $37,500 to Republican legislative campaign committees on Jan. 10. That was two days after the bill was introduced in the Senate by Senate Finance Committee Chairwoman Liz Krueger (D-Manhattan).

"This is a statewide issue, it’s an everyone-who-uses-health-care issue," Krueger said at a rally for the bill. She said hospitals can’t justify to New Yorkers raising the price on, for example, a mammogram "from $300 to $1,000 even though it’s the same machine and the same doctor in the same office as they went to a year before."

"We like to think we have a not-for-profit health care system," Krueger said. "But that’s less and less." 

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.