In Brief:
- The the best of our knowledge, local governments have never attempted to regulate hospital prices.
- Measures would cap prices charged by hospitals and other health care providers at 115 percent of “the reasonable cost of direct patient care.”
- What costs are acceptable and how will we stop providers from increasing costs as much as possible” to compensate for the cap are not clear.
- Stanford estimates this would cut its total revenue by 25%.
- Industry competition is much healthier in Southern California than in the North - where hospital charges are typically 55% to 70% higher.
- Health plans purchased on the state insurance exchange were 35 percent higher in Northern California than in Southern California.
At a time of mounting national anger about rising health care prices, the country’s largest union of health workers has sponsored ballot measures in two San Francisco Bay Area cities that would limit how much hospitals and doctors can charge for patient care.
The twin measures in Palo Alto and Livermore, sponsored by the Service Employees International Union-United Healthcare Workers West, take aim primarily at Stanford Health Care, which operates Stanford Hospital and Clinics, the facility with the third-highest profits in the country from patient care services, according to a 2016 study.
The union also is sponsoring Proposition 8, a statewide measure that would impose a cap on profits for dialysis clinics. Together, the state and local measures seek to draw on public outrage over sky-high medical prices. And, for municipalities, they amount to a novel and untested effort to rein in those prices through the ballot box.
“I’ve been in this field almost 50 years, and I’ve never seen a local government regulating hospital prices,” said Paul Ginsburg, director of public policy at the Schaeffer Center for Health Policy & Economics at the University of Southern California. A number of states set hospital rates in the 1970s, and two states, Maryland and West Virginia, do so today, he said. ...
The Palo Alto and Livermore initiatives, which also affect other medical systems in the cities, would cap prices charged by hospitals and other health care providers at 115 percent of “the reasonable cost of direct patient care.”Read full article here.
And there, some experts say, lies the rub.
“What is a seemingly simple idea — limiting prices to 115 percent of ‘costs’ — is neither simple in execution, nor concept,” said Benedic Ippolito, a research fellow at the American Enterprise Institute who studies health care financing. “What costs are acceptable? How will we stop providers from increasing costs as much as possible” to compensate for the cap? ...
Under the initiatives, hospitals and other medical providers would be obliged to pay back any charges above the cap each year to private commercial — but not government — insurers, and to patients who pay for their own care. They would also owe the cities a fine equal to 5 percent of the excess charges. Fines collected by the cities could be used to pay for enforcing the laws.
Stanford estimates that Proposition F, the Palo Alto measure, would reduce the health system’s budget by 25 percent, forcing it to make cutbacks and possibly end essential services, said David Entwistle, the health system’s president and chief executive officer.
Livermore would need to spend $1.9 million a year on the staff required to implement Measure U — its version of the proposal — and would likely incur another $750,000 to $1 million in legal and startup costs, according to an analysis conducted for the city by Henry Zaretsky, a health economist who has worked for the state and the California Hospital Association. ...
Industry consolidation is far more pronounced in Northern California than in Southern California, according to a recent study from the University of California-Berkeley. As a result, inpatient hospital prices in the north were 70 percent higher and outpatient costs as much as 55 percent higher than in the south. The price disparities, even within the Northern California region, can be dramatic.
For instance, independent doctors in the Bay Area are reimbursed, on average, a median $2,408.45 for a routine vaginal delivery, which includes prenatal and postnatal visits, according to a 2017 Kaiser Health News analysis of claims data from Amino, a health cost transparency company. That compares with $5,238.13 for the same bundle of services for Stanford physicians (and $8,049.84 for doctors employed by the University of California-San Francisco).
The higher cost of medical care also pushes up insurance premiums for patients. Health plans purchased on the state insurance exchange were 35 percent higher in Northern California than in Southern California, the 2018 UC Berkeley study showed.
