State health care reform efforts vary, but gaining momentum overall

More states are taking an active role in addressing the factors that can artificially skew the cost and effectiveness of employee benefits packages.

As legislators and regulators educate themselves on health care’s Byzantine financial structure, they are moving on from more general (and unenforceable) “goals” such as setting ceilings for overall health care cost growth. Initially, state legislatures tended to prioritize measures designed to increase access to insurance and medical care for individuals. Now, more are homing in on such matters as anti-competitive practices, pharmaceutical costs, merger review, and surprise billings that would directly benefit employer plan sponsors.

Related: How employers can help fix the US health care system

While state activity varies widely, the overall accelerated pace of it is cause for optimism. Benefits consultants have long encouraged employers not to wait for relief at the federal level, where stalemate is the default setting. Instead, they say, focus lobbying locally and educate elected officials closer to home.

In general, blue states are leading the way in health care reform. But as more state employer groups are formed to represent employer interests, the push for specific types of relief are fast crossing over political color lines. Currently, supporters determined to rein in health care spending, and to improve access to quality care, are lining up behind several major initiatives.

Anti-competitive measures

This is an area where strong regulation and oversight could directly help employers. State officials are starting to identify and sanction health systems and insurers that systematically include anti-competitive language (or unwritten “guidelines”) in benefits contracts with employers. These clauses have been proven to increase the cost to plan sponsors unnecessarily by restricting plan member choices.

The California legislature is “very close to passing” a bill that would prohibit certain anti-competitive practices used by health systems to reduce health care options for plan members, says Bill Kramer, Executive Director for Health Policy, Purchaser Business Group on Health.

Because of the clout large monopolistic health systems and insurers can exert over their customers, employers are often forced to agree to terms that limit where their members can receive health care services. The measure is the California legislative response to a decade-old class-action lawsuit against a Northern California health system in which employers alleged Sutter forced plan sponsors to accept anti-competitive practices in their provider contracts. The parties settled, with Sutter paying out more than a half a billion dollars to the plaintiffs.

The settlement prohibited Sutter from including clauses that require plan members to use certain health systems and their preferred partners, regardless of quality ratings, if they expect to be reimbursed. The California bill would outlaw such practices statewide, and, Kramer said, is seen as a template for similar laws in other states.

Other states addressing or already implementing anti-competitive measures tend to be located in New England and on the West Coast. Provider and physician group practices with non-compete and most favored nation clauses are currently most frequently targeted by state actions.

State legislatures attempting to curb these practices often face stiff lobbying from health systems. In Virginia in February, a reform bill died in the Senate that was aimed at forcing market-dominating systems to stop steering plan members to their vertically owned partners. Reform-minded elected officials have been attempting to open up market giant Sentara’s network to competitors for four years. So far, Senara has managed to prevail against all comers.

Mergers and acquisitions review

Directly related to anti-competitive measures, states that are tightening M&A oversight in the health care sector are addressing what happens to employer choices when market consolidation occurs. The rapid pace of health care consolidation has already stripped many employers of practical options for care. Monopoly health systems generally scoop up all the independents in their domain, from physician practices to specialty clinics to urgent care providers. But better late than never, state legislatures are now moving to review proposed mergers to determine the mergers’ effects on health care spending, access, and quality.

Oregon has been the leader in battling market consolidation. The Source on Healthcare Price & Competition, a health care reform project of the U.C. Hastings College of Law, extolled Oregon’s elected officials for their work on merger review.

Oregon “has long required prior notice of nonprofit health care transactions and additionally provides statutory authority for attorney general review and approval of such transactions based on a broad set of criteria that include public interest and antitrust review,” The Source said. “In 2021, Oregon state lawmakers passed new legislation that may be the most comprehensive merger review law in the country, requiring state health authority approval of any mergers, acquisitions or affiliations between entities whose patient or premium revenue exceed a certain dollar amount.”

Not far behind Oregon are California, Connecticut, Massachusetts, Pennsylvania, and Rhode Island, The Source reported. A Source study of all 50 states’ activities to slow down market consolidation found those five have “the most robust legal frameworks to prevent anti-competitive health care provider consolidation.”

The Nevada legislature is moving ahead with proposals to address both anti-competitive practices and the impact of consolidation on health care costs. According to The Source, every state but Kansas has enacted or is considering some form of M&A review.

Health care affordability and quality

The New England states, along with the West Coasters, Colorado, Illinois, and New York, have been most active in targeting affordability and quality. PBGH’s Kramer cited a recent California initiative to create a California Office of Healthcare Affordability that would set specific upper limits on annual cost increases.

“The California bill is in progress and builds on lessons from Massachusetts, Oregon, Washington, and other states. It sets targets for health care spending growth, and the targets are enforceable,” he said.

Many state attempts to cap health care spending have been hamstrung by an inability to measure cost and its components and to address spending on a micro-level. But states like California are now grinding more finely to determine the components of cost.

Kramer said California’s legislation includes financial incentives to meet targets that are based on “comprehensive data collection on spending and cost factors.” The Office of Healthcare Affordability’s board will be the enforcement agency. Kramer said the measure has been inching its way toward passage with strong support from Gov. Gavin Newsom and key legislators.

“Passage would be a very important step. The effect on cost won’t be felt for several years into the future because the initial steps are data gathering, setting targets, creating incentives. That all takes time. Enforceability is several years out. But it could be a real game-changer.”

A related, non-legislative state initiative is brewing in Colorado, where PBGH and a group of employers are creating a purchasing alliance with quality of care as the goal. Plan sponsors would contract directly with centers of excellence across the state to provide members with “high-quality care at competitive prices.” Using a common set of standards, the alliance will evaluate a range of providers of orthopedics, mental health, pregnancy, and chronic disease management services to identify those with the best outcomes. Kramer believes the model could be scaled nationally so that more employers would be concentrating their health care spend with proven quality providers.

Pharmaceutical costs

When Kansas finally weighed in in 2021 with a bill “establishing restrictions on the use of step therapy protocols by health insurance plans,” it joined the other 49 states in addressing pharmaceuticals in one way or another. (Later in 2021 the Kansas House floated a measure targeting PBMs.)

Two areas of major state concern are understanding and regulating the role of pharmacy benefit managers; and obtaining better information on how pharmaceutical prices are set. More states are moving ahead with legislation designed to pinpoint actuals in those areas so that benchmarks can be established.

Most states are attempting to deal with the PBM boogeyman; California and Florida were among the major exceptions. But those states are among the most aggressive on the pharmaceutical side as they address drug pricing and the importation of cheaper drugs from Canada and Mexico.

Florida has concentrated on reining in prescription drug costs, and has passed laws permitting drug importation from Canada. Other Florida laws require pharmacists to inform customers of generic equivalents and to disclose whether cost-sharing obligations exceed the retail price of a prescription.

California, according to The Source, “leads the nation on the drug price transparency front with SB 17, a landmark law that requires drug companies to give advance notice of prescription drug price increases to public and private purchasers of health care and health care coverage.” California lawmakers are among those pushing for legislation that permits drugs to be imported into the state from lower-cost sources.

Maryland is generally considered to be among the most progressive health care reform legislatures and has consistently set its sights on lowering drug costs and seeking to curb PBMs. Its most recent drug pricing bill (addressing therapeutically equivalent drugs) was enacted last year.

Regardless of the activity level exhibited by elected and appointed state officials, employers must be engaged in the reform process if they are to benefit. They need to be involved in the process, Critical steps include designating one or more experts (internal or external) to track legislation, and to advise on how to implement gains into the benefits plan. Small employers can create groups that increase members’ abilities to both lobby and take advantage of positive legislative/regulatory outcomes. Employers that show support for state officials who want to improve the health care system provides an incentive for sticking one’s neck out to change the system.