Congress has promised to tackle high consumer health-care costs this year. It’s one of the few issues where lawmakers on both sides of the aisle find common ground.
The Lower Health Care Costs Act, introduced in June, is an almost 200-page piece of legislation that seeks to prevent surprise medical bills, lower prescription drug prices and force hospitals to be more transparent about what they bill insurance companies.
But there are already signs of potential failure.
Despite early momentum, Congressional leaders postponed a vote on the measure until after August recess. The pharmaceutical industry as well as hospital and provider groups have started to lobby against the legislation, meeting with President Trump in July to make their case.
Although the Affordable Care Act led to more people having health insurance, many Americans still struggle with out-of-pocket costs, especially ones they weren’t expecting. Meanwhile, health care is taking up an ever-growing size of state budgets. Governors and lawmakers try to tackle this issue almost every legislative session, but few have succeeded in a meaningful way.
“It’s usually a third of state budgets. States have every reason to try and control health-care costs. And yet, everybody struggles to,” says Josh Shaferstein, vice dean of Johns Hopkins University’s Office of Public Health Practice and Training, and a former health secretary for the state of Maryland.
The first and usually biggest hurdle is private interest groups who see reforms as a threat to their livelihood.
“There are a lot of stakeholders that have vested interest and lobbyists on the ground that will fight tooth and nail, whether it’s doctors and nurses groups or insurance companies. They are perhaps moreso willing to fight at the state level,” says Sabrina Corlette, research professor at Georgetown University’s Center on Health Insurance Reforms.
She points to a bill introduced in Colorado this year that would have capped payments to hospitals in order to lower premiums. After pushback from hospital groups, lawmakers amended the legislation — which was signed into law — so that hospitals will be paid the same but will have to pay back a portion of their revenue to help lower premiums.
In Washington state, which passed a first-in-the-nation “public option” bill this year, lawmakers rewrote the original legislation after doctor and hospital groups fought a provision that would have set the same cap on provider payments as Medicare. The final legislation reflected a compromise for insurers to pay providers 160 percent of Medicare rates.
At least eight other states discussed or introduced public option bills this year, but they failed to gain traction.
In Delaware — a state that ranks third in health-care spending but 31st in health outcomes — Gov. Jay Carney signed an executive order in November that outlines eight goals the state will work toward to curb the growth in health spending. But Kara Odom Walker, the state’s health secretary, concedes that they weren’t able to convince stakeholders to enact new penalties or regulations.
“Being a small state makes it a lot harder to do things that might be unpopular. Any conversation that includes words like ‘penalty’ or ‘payment cap’ is like a bomb going off,” she says.
The health-care industry is one of the biggest in the country. That gives it a lot of leverage.
“The health systems are often the largest employers in town. The governor says they want to slow health-care spending growth, and the hospital group will say, ‘that means losing jobs,’” says Robert Mechanic, executive director of the Health Industry Forum.
But as Congress tries to lower out-of-pocket costs, they have an asset that states don’t: better data. Corlette says states often lack impartial numbers on potential policies, hurting their ability to assess and defend legislation.
“It’s very hard for your average state legislator to pierce the veil,” Corlette says. “There’s an imbalance of info for legislators to really tackle the problem. They don’t have a Congressional Budget Office.”
Many compare efforts to control health-care costs to a game of whack-a-mole. A state might successfully regulate spending in one area only to see costs skyrocket in another.
“You might be able to cut rates in Medicaid, but then rates will pop up in private insurance. The standard toolkit for states is fraught with political danger,” says Shaferstein.
“Health care is so complex, and there are so many different players. It’s really hard to get your arm around the whole bundle,” says Mechanic.
For instance, Medicare lowered the limit for how long older patients can stay in hospitals. But there’s some evidence that the Medicare savings became extra costs for nursing homes because hospitals started providing fewer services for elderly patients altogether.
When it comes to controlling drug prices, states haven’t made much progress. They have made more headway regulating surprise medical bills.
Half the states have passed surprise billing laws. Only nine of them, though, included “comprehensive protections” that apply to all insurance plans, according to the Commonwealth Fund.
While states have struggled to actually lower drug prices, like Congress plans to do, they have passed laws to make them more transparent and to clamp down on pharmacy benefit managers — middlemen who negotiate drug benefits for plans.
Five states have enacted laws that require drug companies to notify them if they will significantly raise the price of a drug, and at least a dozen have restricted the power that a pharmacy benefit manager can have, like requiring them to register with the state.
There are some success stories and lessons learned that Congress could use to lower health-care spending in general.
“States should be thinking of more global solutions because you kind of have to go big. Oftentimes people are looking to save $1 to $2 million a year, but that’s not going to make much of a difference,” says Shafterstein.
Only a couple of states have “gone big” in this sense.
Massachusetts passed what became the framework for the federal Affordable Care Act in 2006, known as “RomneyCare,” which requires residents to have health insurance. Health-care spending has since slowed in recent years. Mechanic credits that to the law’s requirements for private health entities to publicly justify price hikes and high spending.
In Maryland, it has taken decades to get health-care spending under control. The state has had an all-payer system for hospitals since the 1970s, meaning they get a fixed sum every month rather than bill insurers for every claim. While that system — which is only used by one other state, Vermont — curbed hospital spending per patient, hospital spending overall grew at a slightly higher rate than the national average.
So in 2014, Maryland forced hospitals to limit their spending to 0.5 percent less than the national growth rate. It has largely been deemed a success, with a report commissioned by the federal Centers for Medicare and Medicaid Services finding that “Maryland hospitals were able to operate within their global budgets without adverse effects on their financial status.”
On a less global scale, states have been able to drive down premiums by implementing reinsurance programs, meaning the government pays for the most expensive patients, taking that bill off insurance companies’ plate.
But reinsurance is like slapping a band-aid on a much larger wound.
“Recent state efforts on reinsurance have worked, but they aren’t really getting at the overall cost of coverage,” says Kevin Lucia, research professor at Georgetown University’s Health Policy Institute.
Anthem is again ruffling the feathers of providers, this time over a new reimbursement policy denying payment for certain follow-up office visits the same day a procedure is performed.
The policy could impact many specialists and primary care doctors. Dermatologists are particularly upset over the change, which they call punitive and unnecessary with the potential to disrupt patient care.
“It is a nuisance. It makes absolutely no sense,” George Hruza, a practicing dermatologist and president of the American Academy of Dermatology, told Healthcare Dive.
It’s the latest in a string of controversial policies from Anthem. The Blue Cross payer that insures 40 million people has taken steps to rein in costs by enforcing different payment policies based on site of care and other factors.
In the past several years, the Indianapolis-based for-profit said that it would no longer pay for emergency room visits if patients show up with minor ailments like the common cold. It also stopped paying for certain imaging tests at outpatient facilities owned by hospitals due to the unexplained wide variation in costs compared with freestanding imaging centers.
And this year, Anthem cut rates paid to hospital-based labs in an attempt to align them with independent labs, a strategy that garnered extensive discussion on lab giant Quest Diagnostic’s second quarter earnings call.
Anthem contends the latest change to office visit payments will prevent duplicative billing for similar visits. The change took effect March 1, according to a previous provider alert. Anthem told Healthcare Dive it’s an update to its claims systems and does not describe it as a new reimbursement policy.
Despite conversations with Anthem, Hruza said his organization hasn’t been given an explanation on what triggered the change and whether it actually addresses a problem or an abuse of the system. He said he understands the need to cut healthcare costs, but wonders how much savings the change will generate as some of the visits are below $100.
The payer proposed an almost identical change last year but later decided to pull it back after intense pushback from the American Medical Association and other provider groups. The newer policy is worse because doctors would receive no payment, and it’s more narrowly tailored to the same diagnosis, Hruza said.
Anthem argues the policy is needed to move care to more cost-efficient settings.
“Our efforts to help achieve that goal include a range of initiatives that, among other things, encourage consumers to receive care in the most appropriate setting and also help promote accurate coding and submission of bills by providers,” Anthem said in a statement to Healthcare Dive.
Hruza is worried the latest iteration would cause patients delays in care.
He gave the example of a patient with acne prescribed a medication. He would want to see them for a follow-up in a few weeks. At that second appointment, if he saw the treatment wasn’t working well, he might prescribe a different medication. At the same time, he may drain an acne cyst, a minor procedure. That would trigger a denial, he said, because of the two visits revolving around the same diagnosis with the same-day procedure.
AMA is aware of the policy and has had meetings with Anthem about its concerns, a source for the organization that represents the nation’s doctors told Healthcare Dive.
For providers, the big fear is the change will result in unjustified claim denials and encourage other payers to adopt similar measures. Hruza said there is no recourse for contracted providers, particularly those that work in smaller practices, when these changes are made, given Anthem’s size as the nation’s second-largest insurer.
As deductibles rise and patients are shouldering a greater burden of the cost of care, insurers may be feeling the pressure from employers to wring out costs from the provider side, Sabrina Corlette, a research professor at the Center on Health Insurance Reforms at Georgetown University, told Healthcare Dive.
“Employers are getting more and more wise to the fact that the reason we have a cost problem in this country is because of provider prices,” Corlette said.
Hospital and healthcare system operations are often so large and complex that at times they can’t act quickly to address declines in profitability. Based on the most recent Kaufman Hall flash hospital report, June 2019 appears to be one of those times.
The report concluded hospitals lacked the flexibility to cut costs as patient volumes decreased. In June, adjusted discharges, patient days and emergency department visits dropped more than 5% compared to May 2019. Operating room minutes declined by 7% compared to May and are down 1.8% year over year, a trend the report said was “most concerning.” At the same time, expenses rose significantly compared to June 2018.
There were some exceptions. Hospitals with 500 beds or more saw an increase in pre-tax profit margins for the third consecutive month, which the report attributed to increased revenues. Smaller hospitals ( fewer than 25 beds and 200-299 beds) also had improved margins, which was connected to increased inpatient volumes. However, mid-sized hospitals (300-499 beds) saw the biggest decline in profitability, while those in the 100-199 bed range also struggled.
Hospitals in the South also fared better than average, which the report attributed to “strong expense management during a period of stagnant volume growth.” By comparison, hospitals in the Midwest, where revenues were flat while bad debt and labor costs were on the rise, had pre-tax margins that were nearly 3.7% lower.
But the report also suggested that most hospital operators are not seeing the big picture. “Nationwide, hospitals continue to be overly optimistic about inpatient volumes, while underestimating the increase in ambulatory care,” it said.
Hospitals also face other potential headwinds: The upcoming Physician Payment Fee Schedule from CMS may not be favorable to providers; federal legislation to end surprise medical bills could wind up being enacted in law; and the courts could wind up striking down the Affordable Care Act, leaving some 20 million Americans without health insurance.
The report concluded “a lack of flexibility is a fundamental risk to hospitals and health systems and something that industry disruptors are likely to use to their advantage in the coming months and years.”
Faced with slim margins and rising costs, the healthcare industry is looking to blockchain, data analytics and innovation to help drive savings and unlock new revenue.
The healthcare industry is facing an urgent need to reduce costs and increase revenue. Research from the Healthcare Advisory Council reveals the not-for-profit health system will need between $40 million and $44 million annually in cost avoidance over the next eight years to maintain a sustainable margin. The challenge is significant, but emerging technologies and innovative strategies are creating opportunities for greater efficiency, better patient care and decreased costs, according to executives and other leaders in healthcare.
Health systems with the best margin sustainability pursue effective cost-avoidance practices, including:
But even with these practices, cost avoidance is challenging—particularly when it comes to Medicare-reliant seniors, who often require frequent medical treatments and hospital admissions. Turning to advanced electronic medical records (EMRs) that are designed around a health system’s risk and workflow can improve treatment decisions and continuity of care, leading to decreased admissions, better cost effectiveness and a greater profit margin.
Simultaneously, some health systems are looking to a pre-paid, value-based medicine model, as opposed to the more common fee-for-service model. Value-based medicine moves the payment upstream, incentivizing providers to focus on maintaining patient health rather than on providing medical interventions. Decreasing the amount of care needed to keep patients healthy has a direct impact on the size of an organization’s margins.
One of the most common inefficiencies in healthcare is how physicians are credentialed. The months-long process for clinician credentialing commands significant time and costs. Emerging blockchain technology may be one solution to this persistent point of inefficiency.
With blockchain, rather than sending a clinician credentialing application to several organizations for verification, the physician and all credentialing locations—as members of a dedicated blockchain network—can have access to the physician’s highly encrypted log. Any changes to the physician’s log can be transmitted to the network and validated by private keys known only to each party and with algorithms agreed upon by the network. In this, trust transfers from a third-party clearinghouse to the network as a whole.
In the blockchain world, the physician could provide access codes to the hospital to review their verified credentials. This could save as much as 80 percent of the current cost and time invested in physician credentialing. Using the same technology and process, blockchain may also be a valuable tool for finding efficiencies when working with patient records.
Healthcare system-based venture capital funds are growing rapidly. In 2017, more than 150 distinct corporate venture groups operated within the healthcare arena, according to Health Enterprise Partners, and these groups participated in 38 percent of all healthcare IT financing.
There are four common objectives for starting such a fund:
Once healthcare investors establish their fund objectives (or mix of objectives), they define their investment approach. This includes establishing a decision-making chain with operational leaders and board members that can allow decisions to be made quickly and in an established pattern. It also includes building infrastructure and could mean adopting a rigorous information environment system, like a healthcare customer relationship management (CRM) system, as well as developing stringent custody and accounting procedures for securities.
Funds should gather resources to support the interactions between the investment fund and the companies in which they invest. At the outset, they should decide the relationship they will have with their investment targets and whether return on investment is a primary or secondary goal. As a part of choosing investment targets, it is important that funds address an important problem of the parent organization and in a way that the organization supports.
For health systems, every patient hour costs $250 in direct operating costs, more than half of which owe to labor. By this, improving efficiency and decreasing the time needed for tasks can save money and support a healthy margin. A mix of advanced analytical data and targeted interpersonal relations can help reduce the time required for common hospital and health system tasks. Predictive analytic modeling software can help yield clearer insight into operations, revealing ways to break down barriers between departments and more effectively manage census levels. This optimizes census distribution inside a complex medical center.
Another rich source of potential healthcare savings lies in the staff hiring process. Successful staff hiring for all income levels is one of the great challenges for health systems, but data analytics can help make the hiring process more efficient. With models built on the characteristics of successful hires, predictive analytics can point to applicants with the best potential for success, improving confidence in hiring decisions. Importantly, while analytics and automation can play a big part in finding the best applicants, once a candidate becomes an employee, important decisions like promotions or relocations require direct personal contact.
As health systems explore avenues for increased efficiency, lower costs and better margins, J.P. Morgan has developed digital innovations to support healthcare investment, strategy and operation. Two of the most applicable include:
These innovations in artificial intelligence and machine learning drive efficiency across a range of areas. Consider the benefits one client enjoyed by virtue of J.P. Morgan’s digital tools:
Going forward, emerging technologies and strategies are indispensable for healthcare systems striving to grow margins in a time when health costs and needs are increasing. Ultimately, hospitals and health systems that find pathways to greater profitability will be best positioned to achieve their primary goal: delivering better care that leads to better patient outcomes.