Health Policy

Are Bipartisan Agreements on Health Care Possible?

By KEN TERRY Ken Terry, bipartisanship, competition

Republicans and Democrats are seen as poles apart on health policy, and the recent election campaign magnified those differences. But in one area—private-sector competition among healthcare providers—there seems to be a fair amount of overlap. This is evident from a close reading of recent remarks by Health and Human Services Secretary Alex Azar and a 2017 paper from the Brookings Institution.

Azar spoke on December 3 at the American Enterprise Institute (AEI), the conservative counterpart to the liberal-leaning Brookings think tank. Referring to a new Trump Administration report on how to reduce healthcare spending through “choice and competition,” Azar said that the government can’t just try to make insurance more affordable while neglecting the underlying costs of care. “Healthcare reform should rely, to the extent possible, on competition within the private sector,” he said.

This is pretty close to the view expressed in the Brookings paper, written by Martin Gaynor, Farzad Mostashari, and Paul B. Ginsburg. “Ensuring that markets function efficiently is central to an effective health system that provides high quality, accessible, and affordable care,” the authors stated. They then proposed a “competition policy” that would require a wide range of actions by the federal and state governments.

The major difference between Azar and the Brookings experts is that Azar blames government regulation and they blame the consolidation of healthcare systems, most of all, for the relative lack of competition in healthcare markets. The parties agree, however, that healthcare prices are primarily responsible for driving up costs. U.S. healthcare spending rose from 2012 to 2016, Azar said, not because of higher utilization, but because of higher prices.

Azar favors consumer-driven plans coupled with health savings accounts to give patients an incentive to seek value and thereby reduce costs. But, while these plans have reduced unnecessary spending in the private market, he said, they haven’t been a silver bullet for private-sector employers that have used them. These plans can reduce unnecessary spending, but financial incentives for patients won’t build a truly competitive market, he said.

What’s needed, in his view, is less government regulation that drives provider prices up. For example, he said, CMS’s hospital outpatient payment system had impeded competition by paying hospital-owned practices more than private practices for the same services. He praised CMS for switching to site-neutral payments for all services offered by both hospital-employed and private practice physicians.

The Brookings experts supported the same regulatory change before CMS made it. In their report, they also said that states should repeal certificate-of-need laws, which inhibit new market entrants. And they favored reforming the 340b drug discount program for hospitals, which they said encouraged the facilities to employ physicians, especially oncologists who administer very expensive drugs. (CMS recently lowered those discounts by nearly 30%.)

Consolidation most to blame

However, the Brookings experts emphasized the role of industry consolidation in the steep rise of healthcare prices. Noting that these prices vary tremendously across the country, the report authors said that market power drives much of this variation. “Hospitals with little effective competition can extract higher prices in their negotiations with insurers, and they do,” they noted. “Hospitals without local competitors are estimated to have prices nearly 16 percent higher on average than hospitals with four or more competitors, a difference of nearly $2,000 per admission.”

Mergers of insurance companies have also driven up health costs, the paper said. The market share of the top four national insurers grew from 74% in 2006 to 83% in 2014. In the median state, the two largest carriers now control two-thirds of the market.

But that horse is out of the barn—and in any case, insurers don’t have much choice but to accede to the dominant healthcare providers in some markets. So the Brookings competition proposal focuses mainly on what can be done to increase competition among providers.

Among their more significant proposals, the Brookings experts would:

  • Have federal and state agencies increase antitrust scrutiny of horizontal and vertical healthcare mergers
  • Ask Congress to pass legislation allowing the Federal Trade Commission (FTC) to enforce antitrust laws on healthcare providers and insurers
  • Revise the Medicare Shared Savings Program (MSSP) regulations to limit the influence of large hospitals and health systems over accountable care organizations (ACOs)

Neither the Brookings paper nor Azar talked about taking two other steps that could promote healthcare competition: 1) liberate doctors from the grip of hospitals; and 2) replace competition between insurers with competition between physician-led entities, such as ACOs and primary care-oriented medical groups. But those radical changes would be impossible without universal health coverage, and it’s unlikely that Congress will vote for that unless Democrats win back the Senate and the White House in 2020.

In a recent Health Affairs forum on health policy ideas for 2020 Presidential candidates, the liberal and conservative panelists agreed that Congress is not likely to do much on healthcare in the next two years. But in the area of competition, perhaps the left and the right can work together on some reforms if they don’t get into a tussle over Medicare for All. Some kind of legislation to lower drug prices is already in the air, and it looks like the two parties could also have a meeting of the minds on promoting competition in healthcare.

The Democrats aren’t going to suddenly support consumer-driven plans, which they view as discriminating against poor and sick people. But perhaps they might be open to changes in the Stark and AKA regulations to allow market-based innovations, and they might be willing to encourage states to throw out certificate-of-need laws. Similarly, the Republicans won’t be thrilled about the idea of a massive antitrust crackdown on healthcare mergers. But they might let CMS release practice-level cost and quality data that can help ACOs form networks and help consumers choose providers.

At least the two sides seem to agree on one thing: Only real competition among providers can constrain healthcare spending.

Ken Terry is a former senior editor of Medical Economics and is author of Rx For Healthcare Reform (Vanderbilt University Press, 2007).

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timt13pjnelsonBarry CarolLeoHolmMDPeter Recent comment authors
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timt13
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timt13

I get the impression that the Democrats want “Medicare for All” or keep Obamacare as is. Not a lot of discussion about compromise. That word is only muttered by the media.

pjnelson
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pjnelson

Since the “pricing” basis for health spending is considered as proprietary information underlying the health insurance industry, this is likely to be a futile strategy concept without heavy handed Federal involvement. Furthermore, anything that might lead to decreased employment in the insurance industry would not sit well with the Governor of each Sate. To decrease health spending as a portion of our national economy, it’s possible there is ONE STRATEGY that has been overlooked. As a prelude, we should all agree that the goal is to manage health spending as a portion of our national economy. The GOAL might be… Read more »

Peter
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Peter

“Maintain a 3 years running average of health spending growth to 0.6% less than economic growth for 10 years. In effect, this would reduce health spending as a portion of the GDP from 18% to 12%.’

Does “health spending” mean system use or system pricing? If use how would you do this? If pricing how would you do this?

pjnelson
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pjnelson

The CMS people have an actuarial unit that has evolved an accounting system to track health spending by all the various sources of revenue that pays for the various institutions that support the providers of healthcare. The most accessible group that regularly assesses this information and produces various reports based on this information can be found at the Altarum Institute. It seems that the CMS accounting structure was originally formulated around 1960. It has been updated periodically since then. This accounting system is similar to the practices of the Organization for Economic Cooperation and Development (OECD), of which the USA… Read more »

Barry Carol
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Barry Carol

I’m with Peter on this one. As I understand it, between 15 million and 16 million people currently work in our healthcare and health insurance system. Over 5 million of those work in hospitals. Doctors, and probably NP’s, PA’s and nurses all make more money than their counterparts in other developed countries do. Gross Medicare and Medicaid spending combined is currently about $1.25 trillion per year which includes beneficiary premiums, state payments on behalf of dual-eligible beneficiaries and IRMAA surcharges from higher income people. The whole pricing issue mainly relates to commercially insured people not yet eligible for Medicare and… Read more »

Barry Carol
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Barry Carol

As a patient, I worry about doctors in practices owned by hospitals being pressured to keep as much referral business as possible within the hospital’s system whether it’s in the patient’s best interest or not. If he/she would be reluctant to send a friend or family member to one of the system’s hospitals, I would prefer to go somewhere else too. When it comes to costs of providing service, it’s important to note that academic medical centers have inherently higher costs than community hospitals because of their education and research missions and they provide the most sophisticated care to the… Read more »

LeoHolmMD
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LeoHolmMD

There is only one thing that you can be sure of in a bipartisan way: these groups are full of crap. The “choice and competition” crowd are living in a fantasy world. When it’s their business interest that is at stake, they will quickly eliminate both. Everyone you mention in this article has been pro-consolidation in every sector EXCEPT with respect to physicians, because nothing could be worse than labor consolidating, right? The only thing worse would be patients consolidating. Big Government and Big Hospital are both causing problems with Big Payer funding the whole disaster. So unfortunately, you will… Read more »

Peter
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Peter

““Ensuring that markets function efficiently is central to an effective health system that provides high quality, accessible, and affordable care,”” Healthcare will never be an “efficient functioning” market. It’s a different animal completely to selling widgets. All health care requires subsidies . and employer plans are just another subsidy. “Azar favors consumer-driven plans coupled with health savings accounts to give patients an incentive to seek value and thereby reduce costs.” So what sector of consumers does this benefit – those needing the ACA? HSAs favor the rich(er) and what part is “consumer-driven”, the ones with ever increasing co-pays and deductibles?… Read more »

LeoHolmMD
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LeoHolmMD

“So if we could have, say, 20 more hospitals in a service area they would compete on price?”

They would do what large health systems are doing now: amplifying and maximizing services. Beyond that, they consolidate or close.

Steve2
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Steve2

I think almost everyone agrees that competition would be a good way to cut costs, but no one has ever figured out to achieve real competition in the health sector. At some point we should probably accept that and move on to other ways to cut costs.

Steve