Support for Government Intervention to Solve Rising Health Care Costs
July 21st, 2021
Ever-rising health care costs are causing many across the political spectrum to rethink their priorities and positions on key health care policy issues. In fact, two recent surveys show both a majority of voters and a majority of executive decision makers at large private employers support government intervention to lower health care costs.
Public support
According to a survey conducted by a bipartisan polling team and supported by Arnold Ventures, 90% of voters say it is important for Congress to take action to reduce health care prices. Additionally, more than two-thirds of voters indicated that reducing health care costs is their top priority for the President and Congress, above other high priorities like investing in infrastructure and providing support for small businesses.
When asked about limiting the prices that hospitals can charge to no more than two times what Medicare pays, 78% of voters expressed support. Limiting hospital prices has broad support among all voters, regardless of political party, with 82% of Democrats and 74% of Republicans supporting it. This is a clear demonstration that lowering out-of-control health care costs is not a partisan issue.
The results from this survey of voters closely mirror the results from a survey of executive decision makers at more than 300 large private employers conducted by PBGH and the Kaiser Family Foundation (KFF). The survey found significant concerns regarding health care costs, and a significant majority of responding large employers, 83%, agreed that the cost of health benefits is excessive. In addition to agreeing that costs were excessive, 87% of respondents believe that the cost of providing health benefits to employees will become unsustainable in the next five to 10 years, and 85% believe that there will need to be greater government roles in providing coverage and containing costs.
Employers did not blame one cause for excessive costs, with large shares agreeing that the cost of prescription drugs, provider market consolidation and increased market power, volume-based payments and unhealthy behaviors are factors for high costs.
The underlying problem
How we view health care in the United States is changing. The COVID-19 pandemic has made even more clear the problems with our current system, including high costs, incomplete coverage, limited access to care, under-investment in public health and serious racial and ethnic inequities. These problems existed before the pandemic, but it has brought these issues and other problems with our health care system to the forefront.
The bottom line is the cost of health care in the U.S. has become unaffordable for families and employers and health outcomes are poor. High health benefits costs come at the expense of core business investments and hold down wages, dampen business growth and squeeze family budgets.
Increasingly high health care costs for private purchasers in the U.S. are driven primarily by high prices in the commercial sector. Hospital prices in commercial plans across the U.S. in 2018 averaged 247% of Medicare payments and the gap has been increasing. This trend is largely the result of industry consolidation and use of anti-competitive contracting practices and pricing strategies by hospitals, health systems and provider groups to gain market power.
The lack of functional and effective markets in the private health care system is driving the out-of-control health care costs too many of us are faced with. Effective markets require healthy competition among providers, health plans, drug manufacturers and suppliers; transparent information on quality, patient experience, health equity and prices and meaningful choices for consumers. Unfortunately, these conditions are not met in all markets; costs are higher in those markets as a result.
The solution
In some market segments and geographic areas, the potential for healthy competition exists. But markets are threatened and undermined by dominant industry players. In these situations, government needs to strengthen anti-trust enforcement and explicitly prohibit anti-competitive practices that have been the driver of high prices. In other areas, the market is fundamentally broken and it is nearly impossible to address costs through competition. In these situations, government needs to step in to limit prices.
The problem is clear and requires direct government action. We know the majority of voters and executives at large employers overwhelmingly support the kind of action needed. Our leaders simply have to be willing to address the root causes of the problem.
The Biden administration has acknowledged the health care cost problem. Recently, President Biden issued an executive order to promote competition in the American economy. The order directs federal agencies to take steps to restore healthy competition to health care markets. It targets two key factors behind overall high health care costs – drug costs and hospital costs. Our policy makers must continue to work lower health care costs with concrete policy solutions.
Private Equity Poses Grave Threat to Health Care System
June 23rd, 2021
Operating largely beneath the public and regulatory radar, private equity firms have gravitated toward health care over the past decade in pursuit of outsized profits. Investments jumped 189% between 2010 and 2019, from $41 billion to $120 billion, and have totaled $750 billion over the last decade.
Health care acquisitions now represent 18% of all private equity investments, up from 12% in 2010. Key acquisition areas include outpatient care, home health, emergency medicine, dermatology, hospice and elder and disabled care.
Of course, it should come as no surprise that private equity has gravitated to health care. The health care sector is rife with economic distortions and outright market failures that allow unscrupulous actors to earn outsized returns if they are willing to act aggressively and ignore the public good.
Private equity’s expanding presence in health care has increased purchaser costs, fueled a dramatic rise in surprise billing, undermined competition and threatened markets already diminished by the pandemic.
Surprise Medical Bills: A Major Market Failure
Many surprise bills are triggered by private equity business models that intentionally withhold provider groups from insurer networks to extract maximum out-of-network payments from patients. As such, they represent a major market failure in our health care system, one that has imposed punishing bills on unsuspecting patients and added more than $40 billion in additional costs for those with employer-sponsored insurance.
Congress passed the No Surprises Act last year to put an end to surprise medical billing. But just how effective the law will be remains to be seen. Much will depend on how regulators interpret and implement the act’s legislative intent. The rulemaking process is required to wrap up in December 2021 and the law is scheduled to take effect in January 2022.
With the details of the implementation guidelines still very much in flux, legislators need to step in to ensure that the final rules truly protect consumers and produce lower overall costs for purchasers.
Highly Leveraged “Roll-Up” Acquisitions
Along with the damage done by surprise billing, private equity’s go-to business model also undermines the system by focusing on rapidly increasing revenues through highly leveraged “roll-up” acquisitions across markets or regions. Researchers say the approach destabilizes already fragile markets by increasing consolidation, undermining competition and amplifying anticompetitive practices.
Aggressive acquisition strategies, researchers argue, also infuse significant risk into health care markets by loading providers with debt, stripping them of assets and putting them at risk for long-term failure.
While the 2020 closure of Hahnemann University Hospital, a 500-bed teaching facility in Philadelphia, was driven by multiple financial problems over decades, private equity ownership during the hospital’s final years led to a closure process that was “chaotic, uncoordinated and fundamentally not aligned with the needs of the patients and trainees that make up the core constituents of a teaching hospital.”
Approximately 175 nurses, managers and support staff were laid off a little over a year after the hospital was acquired by American Academic Health System LLC. Despite a cease and desist order prohibiting any action toward closure, the owners began cutting vital hospital services, including trauma and cardiothoracic surgery. With the closure that soon followed, the community lost a vital safety net facility that had handled more than 50,000 emergency department visits per year in an underserved area.
The 171-year-old hospital’s unraveling at the hands of a private equity firm prompted an unusually blunt statement of condemnation from Pennsylvania Governor Tom Wolf and Philadelphia Mayor Jim Kenney: “The situation at Hahnemann University Hospital, caused by CEO Joel Freedman and his team of venture capitalists, is an absolute disgrace and show a greed-driven lack of care for the community.”
New Controls Needed
As the situation in Philadelphia showed, private equity investments are often beyond the reach of government oversight. The vast majority of health care deals are unreported, unreviewed and unregulated under existing law. And even when transactions are reportable, researchers say, the complex structure of private equity funds conceal the competitive impact of those deals.
Beyond working to ensure that implementation of last year’s No Surprises Act fulfills congressional intent of halting surprising billing and lowering overall health care costs, an array of other approaches for mitigating the destructive impact of private equity is needed. These include more aggressive anti-trust enforcement by the Federal Trade Commission and greater scrutiny of health care mergers by the Department of Health and Human Services. Further, Congress can take action by enacting policies to ban anti-competitive contracting practices that have driven up health care costs in cities all over the country.
Late Pressure to Change Surprise Billing Rules Could Derail Savings
June 2nd, 2021
An eleventh-hour bid by private equity companies, hospitals and other provider interests to alter the implementation guidelines of the No Surprises Act threatens to torpedo Congress’ objectives of protecting patients from exorbitant, surprise medical bills and constraining soaring health care costs.
Two of health care providers’ most prominent political allies recently signaled they’ll push to modify the rules surrounding the act’s centerpiece arbitration process in a way they assert will help ensure “fair and clear” dispute resolutions. But we believe the effort is simply an attempt to create a backdoor opportunity for physicians and hospitals to continue collecting high, out-of-network rates.
How the arbitration guidelines ultimately shake out will likely have a major bearing on whether the legislation succeeds in protecting patients from often unaffordable medical bills and reduces costs for large, self-insured employers. The rulemaking process must wrap up in December 2021, with the law scheduled to take effect in January 2022.
New Factors Must Be Considered Before Reaching a Price
As originally drafted, the No Surprises legislation stipulated that when determining a fair out-of-network price in instances where payers and providers cannot agree, arbitrators would concentrate on the median, in-network rate used by the health plan for a specific service. The intent was to keep rates paid for out-of-network services in line with those negotiated between health plans and in-network providers.
But late changes to the law added an array of new variables arbitrators must now take into account when determining an appropriate payment. These range from particulars about the episode of care and the providers’ level of training to the type of facility in which the services were provided.
Another conspicuous change stipulates what arbitrators cannot consider when calculating an equitable price: The late language actually bars them from taking into account rates paid by government payers, including Medicare and Medicaid—a move clearly designed to help preserve above-market prices.
Setting the Stage to Keep Medical Bills High
The more pressing concern, however, is that despite the act’s original intent of using median, in-network rates to settle out-of-network payment disputes, provider allies now assert these core benchmarks should impart no greater influence in setting a price than any of the other factors inserted late in the bill.
In an April 29 letter to regulators, Senators Maggie Hassan (D-NH) and Bill Cassidy, MD (R-LA) stated that giving each arbitration factor “equal weight and consideration” will help ensure that neither party has undue leverage in contract negotiations and will “allow for fair and clear determinations that reflect the specific circumstances of each dispute.”
But PBGH and other act supporters understand that requiring arbitrators to equally consider the full range of variables will effectively reduce the median, in-network rate to merely a baseline price, which can then be subjected to multiple upcharges or add-ons, depending on which of the other variables may be applicable.
What’s more, there’s no language in the legislation that ensures the new variables will cut both ways; that they could also be used to pull the price down below the market median. The upshot is that many of added variables already are reflected in payment codes, so considering them as part of arbitration is unnecessary and redundant.
PBGH and others see the attempt to alter the arbitration rules for what it is: A last-ditch gambit by provider interests—including private equity companies currently engaged in physician-practice buying sprees—to preserve the outsized profit-making potential out-of-network charges have long provided. As such, we’re actively communicating with regulators and political leaders to head off this end run and ensure implementation of the No Surprises Act aligns with the law’s intended and desperately needed cost-cutting objectives.
The Real Cost of Health Care: Hospitals Dragging Their Feet on Price Transparency
May 17th, 2021
This year’s landmark federal rule requiring the nation’s 6,000 hospitals to begin making pricing data available publicly was supposed to help consumers and purchasers shop more intelligently for health care services. But whether that’s actually occurring seems questionable.
According to news reports and PBGH’s own analysis, wide variation in how hospitals are presenting price information make provider-to-provider comparisons difficult. Worse yet, hundreds of hospitals have coded their price lists in ways that ensure the data is invisible to Internet search engines. The Wall Street Journal reported the practice is so widespread among both hospitals and payers that the Centers for Medicare and Medicaid Services (CMS) recently issued guidance prohibiting it.
Only 35% of hospitals complying
Then there are the hospitals that haven’t complied with the transparency rule at all, apparently willing to accept a $300-per-day financial penalty in lieu of publishing their price lists. A recent study in Health Affairs found that 65 out of 100 hospitals sampled were “unambiguously non-compliant.”
Among those that have posted prices, the numbers frequently have sparked more questions than answers. Case in point: Prices for caesarean sections provided by Sacramento-based Sutter Health varied by a factor of 10—from $6,241 to $60,584—depending on which Sutter facility did the procedure and/or which insurance company paid for it.
Hospitals point to COVID-19 challenges
The transparency final rule, which was initially published in December 2019, codified an executive order issued by President Trump the previous June that had identified hospital price transparency as a means of encouraging provider competition and reducing costs. The American Hospital Association (AHA) filed suit to block the rule’s implementation and sought an emergency stay, but a federal judge upheld the legality of the regulation in December 2020 and the law took effect on January 1.
The rule requires hospitals to post their entire list of standard charges, or chargemaster, along with discounted cash prices, payer-specific negotiated prices, and de-identified minimum and maximum negotiated charges. They also must publish pricing for 300 specific shoppable health services, 70 of which have been predefined by CMS.
Hospitals believe the Department of Health and Human Services (HHS) should exercise discretion in enforcing the rule, given the challenges facilities face due to COVID-19. Insurers, for their part, have argued that the rule will cost them vastly more than anticipated, require the sharing of trade secrets, and compel the disclosure of “staggering” volumes of data.
But key elected officials are not in a sympathetic mood. Bipartisan members of the House Committee on Energy & Commerce in mid-April urged the HHS to conduct vigorous oversight and enforce full compliance. They suggested the possibility of increasing the civil penalty amount and conducing regular hospital audits. Notably, the current penalty of $300 per day, or $109,500 annually, amounts to about 0.0033% of the average hospital’s net patient revenue of $334.5 million in 2018.
A vital tool for purchasers
The price transparency rule was primarily envisioned as a tool to help consumers make better purchasing decisions. But it will likely prove most valuable to health care purchasers and employers, assuming standardized, accurate pricing data eventually is available nationwide.
That’s because the lack of visibility into pricing historically has been a source of enormous frustration for employers. Without pricing or care quality information, purchasers are effectively flying blind when it comes to decisions about employee health benefits. This knowledge vacuum has been exacerbated by gag clauses and other tactics some providers have used to prevent payers from sharing price or quality information with purchasers.
Equipped with payer-specific discounts and the other details required by the rule, purchasers should be able to determine:
- How their contracted hospitals compare on price with other hospitals, both overall and on an item-specific basis
- Whether payers are charging self-insured employers more than fully insured customers
- Whether their third-party administrator (TPA) is securing the best available deal
Greater hospital transparency could also contribute to improved health plan and pharmacy benefit management pricing visibility.
A multi-pronged approach
As important as price transparency is, it represents only one tool for addressing the enormous problem of over-priced, variable-quality health care. New payment models that align Medicare and Medicaid with private sector purchasers are necessary to ensure that efficiency and quality are consistently prioritized across the system.
And while well-functioning markets continue to represent the best way to get lower prices and higher quality, policymakers need to revise marketplace rules to ensure that drug manufacturers, hospitals and physicians don’t use anti-competitive practices to gain market power and raise prices.
Finally, protecting patients from surprise medical billing must be a key priority. Certain physician groups, often backed by private equity firms, can’t be allowed to exploit their monopoly positions to extract high prices from health plans and self-insured employers.