RAND’s solutions for lowering health care costs are ineffective and potentially harmful
A recent report from RAND misses the mark on solutions to the cost of health care and draws its conclusions from the same recycled and incomplete studies.
Physicians, nurses and all health professionals do extraordinary and often heroic work that no other part of the health care system can. The COVID-19 pandemic is just one example of the essential and life-saving care provided at all times, 24 hours a day, 7 days a week. That means having at the ready highly trained personnel, novel drug therapies and advanced technologies to respond to anything from burns and cardiac failure to delivering a baby.
During the past year, hospitals and health systems cared for their communities in all of these ways despite unprecedented financial challenges. A new analysis prepared for the AHA by Kaufman Hall and Associates forecasts that total hospital revenue in 2021 could be down between $53 billion and $122 billion from pre-pandemic levels. Hospitals and health systems have also experienced increases in many expenses due to COVID-19 in 2020 compared with 2019. This comes on the heels of years of price moderation, with the Bureau of Labor Statistics finding hospital prices grew an average of just 1.9% each year over the last decade.
Against this backdrop, RAND puts forward ineffective and potentially harmful policy options that broadly fit into three categories: rate regulation, price transparency and increased competition.
Rate regulation: Rate regulation is not an effective strategy for reducing consumer health spending. One key reason rate regulation won’t work: Medicare rates do not cover the cost of providing care to Medicare patients. Medicare paid only 87 cents for every dollar hospitals spent caring for Medicare patients in 2019. This resulted in an underpayment of nearly $57 billion. Linking commercial prices to Medicare levels would pull desperately needed resources away from hospitals, especially when more than a quarter already experienced negative margins before the pandemic.
Price transparency: Hospitals and health systems vigorously support and are already working to help patients estimate and better understand what they will pay for care. In addition, new price transparency rules require hospitals to publish negotiated rates. RAND’s solutions would either add another layer of bureaucracy or require hospitals to shift gears yet again and publish these data in a different way.
Also, as the authors themselves note, price transparency is only effective if patients use the tools. Studies show consumers in high-deductible health plans, with the highest incentive to price compare, do not regularly shop around even when data and price comparison tools are available. That’s why hospitals are focused on bridging these gaps by developing tools that engage patients and promote financial literacy.
Increasing competition: The last prescription — to “increase competition” — is the weakest. RAND ignored findings that are inconsistent with their point of view, such as hospital consolidation being linked to a 2.3% reduction in annual operating expenses and a 3.5% decline in revenues per admission. During the pandemic, many systems were able to redeploy staff when surges occurred, or to find new supply chains to deliver personal protective equipment and other supplies and to do outreach to underserved communities in a targeted manner.
Further, no credible argument about market power can dismiss consolidation among health insurers, as RAND does. Nearly 3 in 4 health insurance markets (74%) were highly concentrated in 2019, according to the American Medical Association. At the same time, health insurers are injecting themselves into other parts of the supply stream by buying physician practices and pharmacy benefit managers. Researchers have drawn a direct link between insurer monopolies and higher premiums — a 2018 study of marketplace plans found premiums were on average 50% higher in areas with just one insurer compared to those with more than two insurers.
Even RAND acknowledges their prescriptions could do more harm than good. Co-author and RAND policy researcher Christopher Whaley said in a statement: “Regulating commercial hospital prices is a direct way to create significant reductions in spending, but doing so could potentially lead to hospital closures, erode quality, and face daunting political hurdles.”
The AHA will continue to lead the health care field on affordability and value. The AHA supports new approaches to delivering higher-quality care at lower cost through innovative alternative payment models, as well as efforts to transform the delivery system to ensure the right care happens at the right time in the right setting. Today’s health care system is rife with administrative burden. The hospital field faces duplicative regulation and compliance burdens, along with myriad requirements from insurance plans, each of which have different claims processing, recordkeeping and medical necessity requirements. An AHA study found that health systems, hospitals and post-acute care providers spend nearly $39 billion a year on administrative costs — costs not associated with the delivery of patient care — to support compliance with federal regulations. The AHA is also advocating for lower drug prices, liability reform, further reducing barriers to communication and collaboration among providers, and improving access to health care coverage, especially behavioral health care, among other things.
As we emerge from this epidemic, we should focus on how to bolster hospitals and health systems to prepare them for future pandemics, not layer on more unhelpful regulations. RAND’s omissions and missteps take away from the value this report might otherwise offer in charting a path forward.
Rick Pollack is president and CEO of the American Hospital Association.