Health care costs target of state policy proposals

Lawmakers continued to wrestle with Indiana’s high health care costs Thursday, determining which state actions would be effective to strengthen a free market.

Two national experts testified virtually before the committee to share what other states had done and review options but legislators seemed frustrated by the need to take action.

“… in a (true) free market, we wouldn’t have to do (this). In a free market, folks would know what to pay for what … we don’t have that,” said Sen. Chris Garten, R- Charlestown. “What’s nauseating to me is that we have to get involved in this from a regulatory standpoint and legislate transparency.”

Garten, at the top of the meeting, noted that Indiana had recently been ranked tenth worst in the nation by Forbes when it came to health care, demonstrating the need for continued study and analysis.

“The study should serve as a reminder of why we’re here; Hoosiers deserve better,” Garten said. 

The cost of monopolies

Brent Fulton, a research professor from California, shared policy proposals for tackling the “highly” concentrated health care and insurance markets in Indiana — which built upon his October presentation from last year on the state’s monopolies.

Pros and Cons of setting hospital prices. (Screenshot from Fulton presentation)

“Our number one problem in the United States, when it comes to health care, (is) prices. We actually visit the doctor less than other countries, we go to the hospital less … (but) when we go to the doctor, when we go to the hospital we pay very high prices,” Fulton told the committee.

The lack of competition occurs when systems buy smaller chains, known as horizontal mergers, or purchase physician networks in vertical mergers. 

The state could enhance its merger review authority — Massachusetts, for example, has a commission to review mergers and the Attorney General also plays a role in ensuring competition. Following a merger, Fulton discussed ways to restrict anti-competitive contracts, increase price transparency and institute hospital rate regulation. 

He acknowledged other options — including a state commission on health care affordability, site-neutral payments and re-evaluating the tax exempt status of nonprofit firms — but Fulton didn’t expand because he said they’d been covered elsewhere. The last, in particular, has been a focus of Indiana economist Mike Hicks, who frequently criticizes Indiana’s largest non-profit systems for making billions in profits that he says are invested in the stock market, rather than sent back to locals.

But each move has its own drawback. In terms of price transparency, Fulton noted that providers could then coordinate their prices and those offering affordable procedures could see an opportunity to raise their prices.

“The role of the government in the market is to ensure that the market is functioning; these markets are not functioning,” Fulton said. “There are not  a large number of sellers competing on price … or quality.”

States setting prices, as explored earlier this year in a bill that would set prices at 285% of Medicare rates, is something commonly done to decrease health care costs in Europe. But choosing a price can be “complex” Fulton said, and can easily go wrong if not done correctly.

Price setting still leaves room for profit

Instead of setting prices at 285% of Medicare rates, lawmakers instead tasked the Family and Social Services Administration to research where hospitals sat — though at least one national expert thought it was a good move. 

“I do think it’s … in my opinion, a healthy opportunity for hospitals to make profit margins because of course they need to make some level of profit,” said Maureen Hensley-Quinn, a senior director with the National Academy for State Health Policy. 

Policy proposals from NASHP. (Screenshot of presentation)

“However, we do see … across the country and not just in Indiana, that some hospitals are getting paid from private plans as much as four to five times the Medicare rate without a clear understanding if that has actually helped with improved quality or if it is just raising prices.”

The National Academy for State Health Policy is an organization of government policymakers and stakeholders that highlights state solutions to common problems. Hensley-Quinn shared solutions other states had tried and types of reform. 

High levels of market concentration left employers and consumers with few levers to address health care costs, Hensley-Quinn said, sharing model pieces of legislation developed by her organization. In particular, she discussed site-of-service language — a bill ultimately weakened by industry pressure in the latest session after hospitals said it would force them to close their doors or reduce services. 

“(Procedures) like a colonoscopy or an MRI, that could be done off of a hospital campus. But usually after consolidation happens, providers will drive patients to a hospital campus…,” Hensley-Quinn said. “And then those services are more expensive.”

Lawmakers were intrigued by her presentation of data showing no correlation between hospitals caring for public insurance patients and its private insurance costs, disputing an argument that appeared multiple times during the legislative session. 

Indiana hospitals have argued that they need to charge private insurance policies more to offset losses from caring for impoverished Hoosiers covered under government insurance programs like Medicaid — which they say has an unsustainable and outdated reimbursement rate.

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But research from the National Bureau of Economic Research included in the presentation found that hospitals were more likely to invest in new technology or increase payroll when rates were adjusted.

“When hospitals received an unexpected 10% increase in Medicare payment rates, they did not reduce their prices,” the presentation read, citing the National Bureau of Economic Research. 

Hensley-Quinn said this bore out in other states: adjustments to Medicaid and Medicare don’t always correlate with a decrease in private health care costs but rather stayed flat.

But she and legislators emphasized that multiple sectors of the industry had problems, including insurers passing costs to employers while reaping profits and pharmacy benefit managers confounding drug prices.

“The lack of transparency is throughout the health system; it is not unique to hospitals,” Hensley-Quinn said.

The Health Care Cost Oversight Task Force, helmed by Garten, will meet one more time to discuss final report recommendations on Nov. 13.

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