California hospitals, insurers ready to fight new rate-setting proposal
If the old adage “As California goes, so goes the nation” holds true, providers and insurers across the nation will need to be ready for more intense policy debates over ways to bring healthcare costs under control.
Healthcare organizations in the nation’s most populous state are on edge over legislation introduced last week that aims to mandate rate-setting for providers. The effort is being pushed by patient advocates and labor unions who say the rising cost of healthcare is cutting into wage growth. The fact that state legislators are wading into the minefield of addressing healthcare prices is a sign that consumer—voter— angst is resonating at some level.
But California Hospital Association CEO Carmela Coyle blasted the measure as not only impractical, but detrimental. “It really threatens to unravel the healthcare system in the state of California,” Coyle said.
The rate-setting commission proposed by the legislation would establish prices for physicians and doctors as a percentage of Medicare, with Medicare as the floor. CHA’s preliminary analysis projected that hospitals would lose $18 billion in the first year alone, with 60% of hospitals losing money. The association also cautioned that 175,000 healthcare workers could lose their jobs.
Medicare Advantage would serve as the benchmark for payments to health plans.
Use of the benchmark, according to the bill summary, “creates a simple yet competitive, transparent, and public system of pricing that will lower the costs and save money by reducing the administrative cost.”
Coyle, however, was unequivocal that hospitals would be harmed by what she called unilateral cuts to provider payments, which would be set without considering underlying costs. Underpayments from Medicare and Medicaid lead to the higher commercial rates that spill out to the patient in the form of high deductibles and co-pays.
The California Association of Health Plans is also wary.
“We believe that there are more productive actions that the California Legislature can take to immediately stabilize our healthcare market that are less costly, less controversial and less complicated than rate regulation,” said Charles Bacchi, the association’s CEO. “California should spend its energy on enacting a statebased requirement to obtain coverage to stabilize our individual health insurance marketplace instead of looking at price controls.”
But Anthony Wright from patient advocacy group Health Access California, argued that the proposal addresses the root cause of costs because it introduces transparency. Wright said he doesn’t see the rate-setting as a one-size-fits-all approach because a council would be set up to look at regional cost disparities to determine adequate reimbursements.
“If people want to go beyond that, they need to justify the rate,” Wright said. “It’s not that they can’t, but they have to show why they need more than Medicare—which people take as payment in full for most of their business. In a world where we have very considerable consolidation, and little ability to shop around, we need to have some oversight so the health industry can’t sim- ply charge what the market will bear, if not beyond that.”
Coyle contends that this type of response to prices is unworkable. She also pushed back against comparisons to Maryland’s decadeslong all-payer system in which a commission sets Medicare, Medicaid and commercial insurance rates for the same services offered by hospitals. Coyle was president of the Maryland Hospital Association for nine years before moving to California.
The rates guaranteed by Maryland law are tied to the costs incurred by efficient hospitals, and that program is designed to control the rate of increased costs while also building uncompensated-care costs into the rates. The California measure would simply rebase how much hospitals are paid to much lower levels, Coyle said, adding that the proposal “doesn’t even seem like a rate-setting proposal. It’s a payment-cutting system.”
The State Assembly’s Health Committee is expected to hold a hearing on the bill by the end of April.
“It really threatens to unravel the healthcare system in the state of California.”
Carmela Coyle CEO California Hospital Association