Hospital leaders increasingly open to negotiated price caps

With Democrats debating Medicare for All and public-option health plans, healthcare CEOs have become surprisingly open to the idea of negotiated caps on provider payment rates, according to Modern Healthcare’s latest Power Panel survey.

While expressing strong misgivings about those Democratic reform proposals, 75% of CEOs responding to the survey last month said their organization could live with some form of price caps as long as their industry had the opportunity to negotiate reasonable levels.

“There has been a change in thinking about payment caps over the last five years,” said Howard Kern, CEO of Sentara Healthcare. “The industry can’t be out there setting outrageous prices. We have to be prepared to set rates that are reasonable. But all the players, including pharma, have to be playing under the same rules.”

Price caps are only one of a number of major policy challenges and opportunities the CEOs anticipate facing depending on the outcome of the 2020 presidential and congressional elections.

The survey was based on a small sample size, with 12 healthcare CEOs responding. Those surveyed overwhelmingly see federal health policy currently moving in the wrong direction.

In contrast, after the election they want to see action on expanding and strengthening the Affordable Care Act, controlling prescription drug prices, and boosting funding for mental health and addiction treatment. About 42% of those responding said the election will have a major impact on their industry. “This may be one of the most significant elections for healthcare in a very long time,” said Chris Van Gorder, CEO of Scripps Health, citing the possibility of victorious Democrats establishing a single-payer government health insurance system, which he opposes.

Half of respondents said the election outcome will have only a modest impact, though some said that with the expectation that voters are unlikely to give either party commanding control of Congress and the ability to pass ambitious legislation.

“Drug prices have got to be addressed, but there will have to be some alignment between the Senate and the House to get that done,” Kern said.

Van Gorder agreed that curbing drug prices is critical, particularly as value-based payment grows. “Some drugs are so expensive that they could destroy the value-based plan with just a few patients needing that therapy,” he said. “We need some frames around those costs.”

The healthcare executives are deeply worried about what will happen if the courts strike down the ACA as unconstitutional, in response to a lawsuit filed by Republican attorneys general and backed by the Trump administration. A ruling in that case is expected soon from the conservative-dominated 5th U.S. Circuit Court of Appeals, after which an appeal to the U.S. Supreme Court is likely no matter the decision.

Still, the CEOs have a hard time imagining either the courts or federal elected officials erasing the most popular provisions of the law, such as expanding Medicaid to low-income adults. Most predicted that if the courts topple the ACA, Congress will reenact it with slight changes to pass constitutional muster.

“If the ACA is struck down without a plan to replace it, we’re in deep trouble in this country,” said Dr. Gary Kaplan, CEO of Virginia Mason Health System. “All those provisions for coverage, pre-existing condition protections, and keeping children on their parents’ health plan have become norms. We have to be prepared to reenact legislation.”

CEOs interviewed for this article had different views of Democratic proposals to establish cheaper public-option health plans to compete with private insurers, which some experts consider a more politically viable approach than Medicare for All.

Peter Fine, CEO of Banner Health, warned that public-option plans likely would underpay providers and disrupt the healthcare system. “We have to make big investments on a long-term horizon,” he said. “When we see a significant level of disruption, does that make us nervous? You bet it does.”

In contrast, Kaplan sees some form of a public-option plan that pays reasonable rates and moves the U.S. toward universal coverage as desirable. In Washington state, where his system operates, public-option plans administered by private insurers and paying hospitals about 160% of Medicare rates are slated to hit the market in 2021, under a state law passed this year.

Still, he cautions that the public-option plans have to pay more than Medicare, and that rates need to be set through a collaborative effort between government, health plans and providers.

“There are huge disparities in commercial rates and there could be some advantages if those payments are leveled out, particularly for those who don’t have pricing power in the market,” he said.

Half of CEOs surveyed said current bipartisan congressional efforts to protect patients from surprise, out-of-network bills would have a negative impact on their organizations.

While they support the idea of shielding patients from such bills, they oppose the idea of capping out-of-network rates. They’d prefer an arbitration process between providers and payers.

“If you set the price cap for out-of-network care in the emergency room at 150% of Medicare, we would lose millions,” said Van Gorder, whose state already caps out-of-network rates but not for self-insured plans. “And it would take away the incentive of insurers to negotiate a fair rate. That’s why insurers are advocating for this.”

Shifting Medicaid financing to a capped federal payment model, which the Trump administration and congressional Republicans strongly support, is another proposal that 75% of CEOs said would have a negative effect on their organizations. That’s a direction Republicans are likely to go if they win the elections.

But one CEO said much depends on the complex details of how a Medicaid block grant or per-capita cap model is designed.

“We could be very receptive to a block-grant approach giving us more flexibility to manage Medicaid patients,” said Kern, whose organization offers health plans serving people dually eligible for Medicaid and Medicare. “But I am worried the feds will look for the states to pick up a bigger share of the costs of seniors on Medicaid.”

Meanwhile, the CEOs said they are not making any contingency plans for the ACA being thrown out or for the next Congress to pass a major healthcare overhaul like Medicare for All. Instead, they are focusing on delivering high-quality care and innovating to increase the value of the care they provide.

“We won’t react to every fear or piece of legislation,” Van Gorder said. “If we did that, we would drive the organization absolutely nuts. I get up every day worrying about whether we’re going to deliver good care to the patient in the trauma room. I worry less about what legislators are doing in Washington or Sacramento.”

The CEOs interviewed all lamented the partisan-driven reversals in health policy over the past decade. They guardedly hope that Republicans and Democrats after the 2020 elections will move forward together on the nation’s health goals.

“Had Republicans and Democrats worked together to fix the ACA, we wouldn’t be talking now about radical approaches that I don’t think will work,” Van Gorder said. “After the election I’m highly skeptical that will happen. But I’d like to think it will.”