To rein in health costs, experts focus on $1.2 trillion in U.S. hospital spending

corridorhospital-300x200Although politicians have obsessed for a decade about affordable health insurance, frustrated patients have seen little or no relief on another crucial concern — the skyrocketing costs of medical services. What policy paths could best offer dollars-and-cents help to struggling people with health care prices?

New research from the independent, nonpartisan RAND Corporation offers intriguing clues about billions of dollars in annual savings, based on complex modeling of actual options confronting the public and policy makers.

These choices, the experts say, may come to the political fore with new force due to the economic shocks the U.S. health system has been hit with due to the coronavirus pandemic.

The RAND experts started by zooming in on one of the biggest drivers of health costs: the $1.2 trillion Americans spent in 2018 alone on hospital care. That is roughly a third of the total annual health care spending in the country. The researchers considered three often-promoted options to cut that cost:

  • Regulating hospital prices, tying them to rates already established by, say, Medicare
  • Improving price transparency (for example, by requiring, as the federal government recently decided to do, posting of prices for various procedures and supplies)
  • And increasing competition among hospitals (for example, by discouraging mergers of big institutions or the acquisition of major hospitals of smaller facilities)

They found for price regulation:

“Setting prices for all commercial payers could reduce hospital spending by $61.9 billion to $236.6 billion when the rates are 100% to 150% of Medicare rates; this change would lead to a 1.7% to 6.5% reduction in national health spending. Setting prices for a public option or for highly concentrated hospitals would reduce the impact on spending, while capping prices could increase the impact on hospital spending.”

In the alternative, they found of price transparency:

“Increased price transparency potentially reduces hospital spending by $8.7 billion to $26.6 billion. [But the] uncertainty in how patients and employers would respond to price transparency initiatives necessitated the modeling of patient-driven scenarios, in which patients use price information to seek lower prices, and employer-driven scenarios, in which employers use price information to seek plans that steer patients toward lower-cost hospitals.”

And, in looking at increasing competition:

“Decreasing hospital market concentration would reduce hospital spending by $6.2 billion to $68.9 billion. Given how concentrated today’s hospital markets are, policymakers would need to radically restructure hospital markets for prices to approach competitive levels.”

Each of these options comes with significant hurdles and negatives, the RAND experts reported, noting, for example of the alternative with biggest dollar result:

“A key challenge for price regulation would be determining the appropriate level for setting or capping commercial rates, particularly for the commercial population, which has different underlying costs of care than the Medicare population. We estimate that setting or capping commercial rates close to Medicare rates would yield the largest reductions in hospital prices. But reducing hospital prices would need to be weighed against potential adverse effects of widescale rate regulation, including the possibility of hospital closures, reductions in hospital employment and wages, and erosion of hospital investments in care quality—all of which would vary depending on the level at which rates are set. A policy change of this magnitude would also likely face substantial opposition from provider groups. We analyzed price changes at a specific point in time, but policies could be phased in over time to allow for a gradual transition in prices, which could help mitigate political opposition. Additionally, limiting the scope of these policies—for example, by using higher rates or by restricting rate regulation to a public option or highly concentrated hospital markets—would have smaller effects on overall hospital spending and could be more politically feasible.

Still, as history shows, Maryland has made headway with its still controversial state regulation of hospital prices. And Montana is gaining attention for its efforts, which may not only be replicated by states but also by employer-insurer consortiums haggling with hospitals over costs. As the independent, nonpartisan Kaiser Health News Service reported on the push by onetime Montana official Marilyn Bartlett, and how she pegged hospital prices to a Medicare multiple, wrestled with powerful institutions and their political forces, and saved the state employee health system $30 million over three years:

“Montana’s success became a small sensation, at least in health policy circles. Now, one big question remains — the same one that has deflated the highest hopes of so many health care leaders. Can it be replicated? Many of the country’s employers are desperate to find out. Their costs have risen 50% in just the past decade. Employee spending on health care is also on the rise, growing two times faster than wages. Leading economics researchers point to high hospital prices as a key culprit.”

KHN also reported:

“Since retiring from Montana state government in December 2019, Bartlett said she has spoken at numerous conferences, given hours of free advice, and answered a seemingly endless stream of calls. One of the first calls came from Trish Riley, executive director of the National Academy for State Health Policy (NASHP). Riley hired Bartlett in 2019 to serve as ‘a coach, cheerleader and mentor’ for officials from dozens of states trying to cut costs, including New Jersey, which passed a bill in 2020 overhauling the state’s health coverage for teachers and estimated to save the state $30 million annually. Bartlett is also advising regional business coalitions stretching from Houston to Maine and seeing early signs of progress. In Colorado, Bartlett is coaching a group of public employers, including city, county, and state health plans, that have come together to negotiate with hospitals. The group recently notched its first win, signing one hospital to a Medicare-benchmarked contract. In Indiana, Bartlett is advising the Employers’ Forum of Indiana, a coalition that recently pressured insurer Anthem to renegotiate its contract with a notoriously expensive health system. Bartlett is even shaping legislation, including recent failed attempts in the Montana legislature to more broadly control hospital prices and in the U.S. Senate to increase transparency.”

In my practice, I see not only the harms that patients suffer while seeking medical services, but also struggles to access and afford safe, efficient, and excellent health care. This has become an ordeal due to the skyrocketing cost, complexity, and uncertainty of treatments and prescription medications, too many of which turn out to be dangerous drugs

The long battle over the Affordable Care Act might not go away, as Republicans pursue their almost theological opposition to the ideas that health care is a right, not a privilege, and patients in the wealthiest nation in the world should not be bankrupted by the costs of medical services or prescription drugs. After a decade in force, and with high and rising popularity, can’t the GOP accept the ACA is here to stay — and people from coast-to-coast need not only health insurance but also relief from crushing medical costs?

It might seem unkind to scrutinize hospitals and their prices after the brave, back-breaking toil that health workers and the institutions have put forth during the pandemic. But the awful times also may have forced us all to reconsider what works and what does not, as well as what is valuable and what is not, in the U.S. health system. We have much work to do to improve health care, including its out-of-control prices in normal times, so we move the country to a better place.

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