Employer health care advocacy group urges action on ‘indefensible’ hospital prices

The National Alliance of Healthcare Purchaser Coalitions, which represents larger employers who purchase healthcare coverage, is calling for new scrutiny on hospital and provider pricing, saying that much of the high cost of health care stems from “indefensible” hospital prices, which do not correlate with the actual cost of providing care.

The National Alliance recently released a new resource, “Setting the Record Straight: The Urgency of Achieving Hospital Fair Price,” which looks at the top areas of high prices for care and argues that many of the reasons for high costs given by health systems and hospitals do not stand up to closer examination.

“Hospital prices make up about half the bill of employer health care costs—by far the largest cost of any sector—and have consistently been the fastest growing,” the report said. “Of particular concern is the growing body of evidence demonstrating that employers and other plan sponsors in the commercial market pay between 150%–700% of Medicare for hospital services—with the national average roughly 250% of Medicare. These hugely inflated prices are borne by America’s businesses and passed on to employees and their families through higher insurance premiums, increased deductibles, and lower wages.”

A point-by-point rebuttal

According to Michael Thompson, president and CEO of the National Alliance, the new resource takes a list of health care cost talking points and provides data that in many cases refutes or raises questions about the stock answers for high prices.

“We are taking the arguments one by one and explaining the facts as we see them based on the actual data,” he said. “Hospital prices have far outpaced everything in the economy, even more than college tuition. We need to reverse the trend because it’s gotten out of control.”

For example, the report lists as “Myth 1” the idea that hospital prices are based on providing care and investing in improvements to quality and infrastructure. The report finds “There is no correlation between hospital prices and the actual cost of providing that care.” The report argues that there is a lack of transparency about investments, staffing, overhead costs, and how prices are set, and there is little evidence to support the continued rise in prices.

Another important issue that has been explored by researchers elsewhere is the question of mergers and acquisitions. There has been a great deal of consolidation of hospital systems and private practices, usually in the name of efficiency. The report strongly disputes the claim that mergers lead to lower costs.

“Decades of research overwhelmingly show that consolidation increases prices 10%–20%. While operating expenses may decrease, profits increase through ever-increasing prices,” the report said. “Mergers have not improved quality and access, but they have systemically increased prices and forces and need to be regulated.”

Medicaid losses offset by other revenue

The report also looks at a couple of legitimate problems for health care delivery: low Medicaid reimbursements and labor shortages.

The National Alliance research noted that Medicaid reimbursements are often below the cost of care. However, it points out that other supplemental payments such as Medicaid Disproportionate Share payments help hospitals deal with these losses. “Taking these streams into account, the Medicaid and the Children’s Health Insurance Program Payment [CHIP] and Access Commission has found that Medicaid hospital payments are comparable to Medicare—a rate that MedPAC has consistently found is sufficient to cover hospitals’ costs on average,” the report said. “Even where such payment falls short of the cost of care, this shortfall is nowhere near able to justify the extraordinary overcharges on commercial rates.”

Labor costs and shortages are a legitimate issue, Thompson said. However, even if wages were increased, it wouldn’t justify the current high prices.

Possible ways of addressing high prices

Thompson noted that direct contracting with providers has been useful for some employers, but that for many, there isn’t enough provider competition in the market, or the employers don’t have the resources to do the negotiation in the first place. In addition, when employers have workers in different states or areas, the ability to negotiate becomes even more complicated.

Thompson also pointed to the developments of new technologies such as the Sage Transparency tool, which allows purchasers or consumers to view data on costs and prices for hospitals across the country. “That’s where transparency is bringing us—it’s easier to call people out when things don’t make sense,” he said.

Related: House passes health care bill that targets hospital price transparency, PBM reform

Purchasers are becoming more aware of their power in the market, he added, and it will be important for them to work together to address unsustainable growth in health care costs. Thompson said he expected his group will work with federal and state policymakers to help give employers more tools to ensure fair pricing.

“We know there are hospitals out there doing the right things to ensure the overall health of the people and communities they serve,” Thompson said. “We’re looking to all hospitals to do right by their customers – their patients – by working in good faith to negotiate fair prices with employers and other plan sponsors who provide health care coverage to more than 70% of workers.”