Employers, Health Plans Exclude High-Priced Hospitals in Los Angeles Market to Lower Costs

NASHVILLE, Tenn., July 16, 2013 /PRNewswire/ -- HealthLeaders-InterStudy, the leading provider of managed care market intelligence, finds that the least consolidated healthcare market in the country, Los Angeles, is starting to show signs of coalescing in preparation for healthcare reform models that benefit large delivery networks. Employers are increasingly willing to choose networks that exclude high-priced prestigious research institutions to cut costs. The City of Los Angeles' decision to choose an Anthem Blue Cross HMO illustrates this trend—the arrangement excludes physicians from Cedars-Sinai Medical Center and UCLA Health System in order to eliminate referrals to those more expensive hospitals. The advent of the state's health insurance exchange, Covered California, will only intensify the trend toward narrow networks in the market, since most health plans have excluded these research institutions from their exchange networks.

"We expect pressure on the high-priced, academic hospitals in the market to reconsider pricing as narrow networks continue to exclude them," said Jenny Kerr, Market Analyst at HealthLeaders-InterStudy. "Employers are sending a message that they are no longer willing to pay for hospitals that charge higher rates for routine services to cover costs of their teaching and research missions."

Key drivers in Los Angeles also include continued growth in Accountable Care Organizations (ACOs); the market has 23, the most in the state and the second-largest number in the nation. ACOs allow providers in this fragmented market to compete against integrated delivery system Kaiser Permanente. "The rapid creation of ACOs—which are primarily physician-led in this market—means physicians will be incentivized to prescribe the most effective medication rather than the least expensive to ensure quality outcomes," Ms. Kerr explains.

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SOURCE HealthLeaders-InterStudy