DOJ’s NewYork-Presbyterian Investigation Shows Why We Need Standardized Healthcare Pricing
On the DOJ’s latest antitrust probe into a healthcare powerhouse
By Emma Freer, Sr. Policy Analyst for Healthcare
Earlier this week, The New York Times reported that the Justice Department is investigating whether New York City’s powerful NewYork-Presbyterian hospital system made secret deals with insurance companies in violation of federal antitrust laws. If the investigation continues, it could potentially blow the lid off what’s thought by many industry observers to be a widespread hospital business model – and result in lower prices for patients not just in New York City, but across the country.
Let’s get the particulars out of the way. The federal government is probing whether NewYork-Presbyterian used its size and clout to bully insurers and health plan sponsors, making its participation in their networks contingent on accepting such egregious contract terms as prohibitions on steering their members to other, more affordable in-network hospitals. It’s possible that the practice, if it occurred, enabled NewYork-Presbyterian to keep its prices artificially high, without fear of losing business.
NewYork-Presbyterian would not comment on the federal investigation to The New York Times. But the allegations in question are hardly unknown in the healthcare industry. As hospital systems have gotten larger and more monopolistic, the opportunities to abuse their dominance are only more plentiful – and, as a result, you can go on YouTube or TikTok, and find multiple healthcare professionals explaining how hospitals and insurers gouge patients in this particular way.
This can happen because of the leverage that hospital systems hold in negotiations with insurers and health plan sponsors. The latter group needs to include a certain number of hospitals in their provider networks to meet state and federal network adequacy requirements. Hospital executives are no dummies. They know this. The more market power they have, the greater their ability to keep their prices higher than a truly competitive market would allow. This goes a long way towards explaining why health care research foundation KFF found in roughly half of metro areas, just one or two hospitals or health systems controlled the entire market for inpatient hospital care in 2022. That same year, the RAND Corporation found that hospital mergers are associated with significant increases – up to 65% – in the prices negotiated by the merged entity and insurers.
At the same time, insurers and plan sponsors are under pressure to include particular hospitals in the networks to attract customers – i.e., insured patients – who seek convenience and reputational excellence. NewYork-Presbyterian, if you are wondering, scores on both counts. It is among the largest networks in the New York City metropolitan area. At the same time, many of its hospitals – including Columbia University Medical Center and Weill Cornell Medical Center – are not just nationally, but internationally, known.
This market domination – especially when combined with patient preference – can give hospital systems outsized power in contract negotiations, allowing them to demand that insurers and plan sponsors include their facilities in all their networks or establish low co-pays to incentivize members to use their facilities, even though they charge much more for their services than other in-network providers.
Needless to say, this sort of corporate profiteering comes at the expense of both insured patients and plan sponsors. The Cement and Concrete Workers District Council union filed a private class-action lawsuit against NewYork-Presbyterian last week, alleging that the hospital system’s illegal anti-steering tactics resulted in its health plan overpaying for benefits. The complaint cites an analysis of its claims data, which found that NewYork-Presbyterian was “by far the most expensive hospital system in New York,” charging 74% more per inpatient stay, on average, than other major hospitals.
Other hospital systems have faced similar regulatory and legal scrutiny in recent years because of their insurance contracting practices. In 2021, Sutter Health, the largest hospital system in Northern California, agreed to pay $575 million to multiple health plan sponsors to settle allegations that its “unlawful, anticompetitive business practices … caused them to pay more than necessary for healthcare services and products.” Atrium Health, the dominant hospital system in Charlotte, North Caroline, settled similar allegations with the federal government in 2018.
It goes without saying that artificially inflated prices are good for mega hospital systems but bad – and sometimes fatal – for pretty much everyone else. So, it’s welcome news that the Justice Department is investigating NewYork-Presbyterian and that New York City unions are taking the health system to court.
But piecemeal investigations and court actions are not enough. Structural legislative reforms are needed to restore price-regulating competition to these healthcare markets.
First, Congress should investigate hospital systems’ contracts with insurers to determine how widespread such secret deals are. Congress should also expand the 1936 Robinson-Patman Act, which prohibits price discrimination, to hospital services, and federal antitrust enforcement agencies, including the Justice Department, should vigorously enforce the new law.
Finally, and most importantly, state legislatures and Congress should set standard prices for healthcare services, eliminating the need for contract negotiations between providers and insurers that result in wildly high and divergent prices. There is no reason why the cost of a colonoscopy or a caesarean delivery or a knee replacement should vary by hundreds or thousands of dollars depending on the hospital where the procedure takes place and the insurer or plan sponsor paying for it. As a bonus, taking this on at the state level would generate savings that could be used to shore up the healthcare safety net in the wake of the Trump administration’s Medicaid cuts.
These policy changes would end collusion between providers and insurers before it starts. They would also, dare I say it, make health care financially healthy again – for patients, rather than monopolists.