Insurers have been targeted throughout the health care reform debate, but an underlying driver of escalating insurance premiums—the growing market power of hospitals and physicians to negotiate higher reimbursement rates—also needs to be addressed, according to a report by the Center for Studying Health System Change.

The report, to be published in the April edition of policy and research journal Health Affairs, traces how consolidation of hospitals and formation of independent physician practice associations in California during the past decade have strengthened providers' bargaining power with health plans, leading to higher premiums in that state.

The report, “Unchecked Provider Clout in California Foreshadows Challenges to Health Reform,” also warns that many of the proposed payment reforms and new organizational delivery models, particularly what is called “accountable care organizations,” in several of the health reform proposals could result in the same consequences nationally.

The report was released last week, the same day the U.S. House of Representatives passed H.R. 4626, the Health Insurance Industry Fair Competition Act, which would amend the McCarran-Ferguson Act to eliminate health insurers' limited exemption from federal antitrust law. The legislation, sponsored by Reps. Tom Perriello, D-Va., and Betsy Markey, D-Colo., was precipitated by consumer complaints about predatory pricing in states where consolidation has given a handful of health insurers control of the market.

Also on Thursday, California Attorney General Jerry Brown subpoenaed financial records and other documents from the state's seven largest health insurance companies as part of a widening investigation of the industry.

But health insurers are not to blame for rising health care premiums, the report suggests.

Rather, “the trends in California suggest an urgent need for policymakers to address the issue of growing provider market strength. In our judgment, more active antitrust enforcement will not do the job. Rather, more direct regulatory approaches, including all-payer rate-setting, need to be actively considered,” according to the report by the Washington-based nonpartisan policy research organization.

Angela Braly, president and CEO of the nation's largest health insurer, WellPoint Inc., echoed the report's sentiments in defending recent premium rises up to 39% for some California residents during a congressional hearing last week. Ms. Braly said the premium hikes reflect higher costs from hospitals, doctors and drugmakers, and she criticized lawmakers for doing little to tackle these issues.

The Center for Studying Health System Change report is “spot-on,” said Arnold Milstein, medical director to the Pacific Business Group on Health and a health care thought leader in the San Francisco office of Mercer L.L.C.

Andrew Webber, president and CEO of the National Business Coalition on Health in Washington, agreed that “in the current market, too often the impetus for provider consolidation is to maximize contracting and pricing leverage rather than to establish integrated systems of care for the benefit of patient care. The provider community needs to understand that these market trends will invite a growing demand for antitrust scrutiny, full price transparency and even renewed interest in price controls to combat ever-rising health care costs.”

But the Sacramento-based California Hospital Assn. and the California Medical Assn. criticized the report as relying mostly on anecdotal evidence and lacking solid data.

“To make the assertion that it's all the fault of hospitals and physicians really ignores the market dynamics in California,” said a spokeswoman for the CHA. “Forty percent of the hospitals in California are in the red” due to delivering more than $12 billion in uncompensated care, nearly one-third of which is attributable to Medicare and Medicaid reimbursement rates that in some cases are as much as 30% lower than that paid by commercial insurers, she said.

“This is what's creating the cost-shift. Those of us with private health insurance are paying more in premiums because the government isn't paying its fair share,” the CHA spokeswoman said.

A spokesman for the California Medical Assn. disagreed with the conclusion that providers have as much clout as the report suggests.

“We have five insurers in California that control 86% of the private market,” he said. By contrast, “46% of the physicians in California practice either by themselves or are in practices with four or less physicians.”

He also pointed to another report, published last week in the Journal of the American Medical Assn., which concluded that doctor fees across the country declined 25%, adjusting for inflation, between 1995 and 2006. The Center for Studying Health System Change's report covered a period from 1999 to 2005.