A new proposal from the Senate Health, Education, Labor, and Pensions Committee could have a meaningful impact on the high cost of U.S. hospital care—if it survives an onslaught from industry lobbyists.
The bill, called the Lower Health Care Costs Act, is the product of bipartisan negotiations led by the HELP Committee’s chairman, Sen. Lamar Alexander (R., Tenn.) and its ranking Democratic member, Sen. Patty Murray (D., Wash.). Overall, its provisions could be thought of as incremental in scope. But some—especially those around transparency—could have a significant impact.
Hospitals routinely engage in anticompetitive practices
Hospitals have a lot of tools at their disposal when it comes to raising prices on consumers. A wave of mergers and acquisitions has led to the rise of regional hospital monopolies that force insurers to accept their high prices, or risk jeopardizing their patients’ access to hospitals in their communities. A new study from the RAND Corporation finds that on average, hospitals charge the privately insured 2.4 times what they charge those on Medicare for the same services.
Behind closed doors, it gets worse. An investigation by Anna Wilde Mathews of the Wall Street Journal found that hospitals use their market power to force insurers to accept higher prices from them, instead of allowing insurers to steer patients to lower-cost, higher-quality alternatives.
Along with anti-steering clauses, hospital systems love to employ all-or-nothing clauses in contracts with insurers. Say a hospital system is comprised of 12 hospitals, some of which are in rural areas where they’re the only game in town. The hospital will demand that any insurer who contracts with one of the rural hospitals must accept the system’s above-market prices in more competitive areas.
Insurers are unable to complain publicly about these contracts, they say, because the contracts contain confidentiality clauses that bar insurers from disclosing their contracts’ contents.
To top it all off, three-fourths of all hospitals in America are “non-profit.” (You would never know by looking at the seven- to eight-figure salaries of their top executives.) The Federal Trade Commission is barred by law from investigating the anti-competitive practices of these “non-profits.” Why?
A game changer for abusive hospital practices
The Lower Health Care Costs Act directly targets these abuses in ways that are refreshing.
The bill directly prohibits anti-steering and all-or-nothing clauses in payer-provider contracts. It also prohibits most favored nation provisions under which a dominant insurer demands that it always gets a hospital’s lowest price.
It also prohibits hospitals and insurers from signing contracts that prevent the terms of their contracts from being shared with the employer who is, in theory, sponsoring the plan. This way, employers could have their own lawyers or other experts review the contracts for anti-competitive features.
The bill would create what’s called an all-payer claims database, or APCD, that would be accessible to researchers, insurers, employers and patients.
The bill would ban “gag clauses” that prohibit patients, employers, and doctors from seeing quality and cost data on hospitals and specialists. It would also ban clauses in contracts that prevent employers from seeing anonymized claims data that they could use to see if they were getting good prices and efficient coverage. It would require insurers to maintain accurate, up-to-date, online directories of in-network providers, so patients can avoid out-of-network claims.
These are real reforms that could start to roll back the most abusive practices that hospitals are deploying today to enrich themselves at the expense of the public.
Ending the surprises, but not the bills
While I’ve highlighted what I think is the most interesting and impactful part of the Lower Health Care Costs Act, the bill contains four other titles, which tackle issues like surprise medical billing, pharmaceutical prices, public health, and digital health reform. In general, the reforms in these parts of the bill are constructive, incremental, and modest.
Most notable—because it has been a hot topic in Washington—is the bill’s provisions regarding surprise bills in the emergency room. A number of different bills have been introduced in Congress to tackle this problem, and while they differ in certain ways, each and every one of them can be summarized as ending the surprises, but not the bills.
When I wrote about surprise medical bills earlier this year, I talked about how the issue comprises two separate problems. The first problem is the surprises: that patients with health insurance who thought they were doing everything right are still getting hit with stratospheric out-of-pocket bills from providers that turn out to be out of network.
The second problem is the bills: the high prices that providers of emergency medical services charge, because they know that patients undergoing real medical emergencies are in no position to shop for care or negotiate a better price. These prices are egregious and exploitative, whether or not they are imposed on the patient as a “surprise.” Doctors whose work revolves around emergency care routinely charge patients 9 times what Medicare pays, even if it’s the insurer that is directly paying the bill, and not the patient.
The various congressional proposals to deal with surprise billing try to solve the “surprise” part in differing ways. Some require that hospitals accept the median in-network prices for out-of-network doctors. Others suggest that a government arbitrator decide whether the hospital or insurer is right. Yet others would require all physicians working at a hospital to be in-network.
Each of these ideas is flawed. Having a government-appointed arbitrator pick the price gives, well, arbitrary power to someone with no expertise in health care prices. That lack of expertise leads many arbitrators to side with hospitals, incentivizing even higher emergency care prices.
Requiring all physicians affiliated with an in-network hospital to be also in-network would, again, end the surprises, but it wouldn’t affect the ability of hospitals and doctors to charge high prices: indeed, it would enhance that ability, because most hospital markets are monopolistic in character. All this kind of “reform” would do is rearrange the deck chairs of how extreme prices are funded: instead of being paid out-of-pocket by the patient, they would be paid through higher insurance premiums on everyone.
The least bad of the three options is to tie out-of-network care to the median in-network reimbursed rate. As I mentioned, median in-network rates are still extremely high, but at least they’re lower than the out-of-network surprise billing rates. And if out-of-network providers are billed at the median in-network rates, insurers might have a game theory incentive to kick high-priced in-network providers out-of-network, leading to a lower median in-network price.
The best option, by far, would be to learn from Medicare Advantage, which pays out-of-network providers at Medicare’s much more reasonable fee-for-service rates. Surprise medical bills from out-of-network providers should be paid at the lower of the median in-network rate and Medicare’s fee-for-service rates. Not only would such an approach curtail exploitative pricing practices, but it would create a market-based incentive for insurers to drive prices even lower.
A better model for hospital competition
Stronger stuff has emerged in the House of Representatives, where two congressmen—Rep. Jim Banks of Indiana and Rep. Bruce Westerman of Arkansas—have introduced robust legislation to reduce the high cost of hospital care and prescription drugs.
Banks’ bill, the Hospital Competition Act of 2019, would end the ability of monopoly hospitals to exploit their market power to charge egregious prices, by capping rates in monopoly markets at Medicare’s fees.
Westerman’s bill, the Fair Care Act of 2019, would do that and more, by also improving competition for prescription drugs.
The White House is poised to act
And more reforms are coming. The Trump administration is finalizing a regulatory change that would require hospitals to disclose their contractual arrangements and prices to the public—providing essential transparency to the murky world of hospital prices.
At a ceremony in the Rose Garden last Friday, Trump said “another big announcement” was coming in a matter of weeks that will have a “profound effect on the things we’re talking about…it’s going to be something really incredible.” While he didn’t say for sure, this is almost certainly related to transparency in hospital contracts.
It has been encouraging to see more interest among policymakers in the problem of high medical bills. But too much of the focus has been on the politics—which centers around out-of-pocket costs—and not enough on the economics, which drives premiums and taxpayer subsidies higher.
Hospitals have enormous lobbying power, because they are usually the largest or second-largest employer in every congressional district. Hospitals claim that if they aren’t allowed to charge whatever they want, they’ll be forced to close and leave their patients without hospital care. Such claims are wildly exaggerated, and require factual scrutiny. Transparency may be the first step in getting us there.
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UPDATE: The HELP Committee announced Wednesday that it would be holding a vote on the Lower Health Care Costs Act on June 26.
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INVESTORS’ NOTE: The biggest publicly-traded hospital companies include HCA (NYSE:HCA), LifePoint (NYSE:LPNT), Cmmunity Health Systems (NYSE:CYH), and Tenet (NYSE:THC).
