States could be next trailblazers for policy regulating hospital costs

State policy experts expect the fight over Colorado’s proposed public-option insurance program to be the blowout battle over hospital payment of 2020, and the healthcare industry is worried enough that a national coalition has spent six figures advertising against the proposal.

But Colorado isn’t the only state that hospitals have to worry about. In California, Democratic Gov. Gavin Newsom recently proposed an Office of Health Care Affordability to create cost targets for healthcare sectors with financial consequences.

And a state health policy brain trust plans to give lawmakers policy templates to tamp down hospital costs across the country—an effort bankrolled by a billionaire Texas couple committed to taking on entrenched healthcare industry interests.

States often serve as laboratories for policy innovation, and action on hospital costs could follow the same pattern, said Trish Riley, executive director of the National Academy for State Health Policy.

“We have seen increasing interest in addressing hospital costs with reference pricing, cost growth benchmarks and transparency,” Riley said.

Congress so far has not passed legislation to protect patients from surprise medical bills, much less address systemic issues around hospital costs. In the absence of federal action, such states as Colorado and California are aiming to work on the problem. But reformers will have to fight well-financed opposition from hospital groups. The American Hospital Association declined to comment on the state efforts.

Outrage against hospitals in Colorado has run high since the state government released a draft report in January 2019 that found hospital costs increased 58.7% from 2009 to 2017 even though the number of uninsured Coloradans dropped by more than half. Democratic Colorado Gov. Jared Polis in May signed a law directing state lawmakers to develop a public insurance option plan for the individual insurance market.

Hospitals do not like the plan, which would use a yet-unannounced formula to determine hospital-by-hospital reimbursement.

The Colorado Hospital Association views the formula as rate-setting and argues that provider participation should be voluntary. CHA Senior Vice President Katherine Mulready said the group will evaluate the formula upon release. “We would be surprised if the draft changed so significantly that we would not be opposed to it,” Mulready said.

State Rep. Dylan Roberts, a Democrat who is one of the lawmakers leading the public-option effort in Colorado, said he hopes to introduce legislation as soon as February. He emphasized that the reimbursement changes would only apply to the individual market.

A group of Johns Hopkins University researchers is providing technical assistance in developing the formula, which will consider hospitals’ payer mix; locations; statuses as independent or part of a larger system; margins; earnings; and administrative expenses.

“It’s really tricky, and this is a really complex decision that state policymakers have to make,” said Aditi Sen, an assistant professor at Johns Hopkins and a member of the research team.

The Johns Hopkins research team is funded by Laura and John Arnold, a Texas billionaire couple who have become major players in the national healthcare policy debate. The not-for-profit Arnold Foundation began its healthcare initiative focused on driving drug-pricing policy change, but has expanded to larger affordability issues including hospital costs.

Hospital costs have become more prominent in public discourse as premiums, high deductibles and surprise medical bills have become pain points for patients, said Erica Socker, vice president of healthcare at Arnold Ventures, the parent organization for the Arnold Foundation. “We see this as a window of opportunity to have this discussion where there may not have been before,” Socker said.

Although Colorado’s funding formula is not final, a prominent national healthcare industry group opposed to Medicare for All already spent more than six figures in December on an ad blitz opposing a public insurance option, per a Colorado Sun analysis, and a local offshoot has spent more than $32,000 on Facebook ads since Dec. 7. The Partnership for America’s Health Care Future is driven primarily by the Federation of American Hospitals, America’s Health Insurance Plans and Pharmaceutical Research and Manufacturers of America.

“A lot of the money flowing in is not because they oppose the specifics, but it is part of a national effort to oppose healthcare reform and protect the status quo,” Roberts said.

Colorado lawmakers have until May 7 to pass the public-option plan, which would be run by private insurers. Democrats control the governorship and state Legislature.

“If they can’t get it done, it likely goes poorly for other states to pass anything resembling a public option,” said Billy Wynne, chairman of Wynne Health Group, a healthcare policy and lobbying firm. Wynne is analyzing the Washington and Colorado public-option programs with a grant from the Arnold Foundation.

In California, Newsom is taking a different approach to regulating hospital costs. The Office of Health Care Affordability, which was part of his proposed 2020 budget, would also be tasked with creating strategies to address regional hospital costs with a focus on consolidation and establishing standards to advance evidence-based and value-based payments to physicians and hospitals.

“While the federal government obstructs progress on lowering healthcare costs, California is taking new and novel approaches to provide needed cost relief to our residents,” said Anthony Wright, executive director of consumer advocacy group Health Access California.

The California Hospital Association officials said they need more details to fully understand the proposal, but that the group shares Newsom’s goals of greater access and affordability.

It is still early in states’ legislative sessions, and other states will likely try to address hospital costs. A nonpartisan health policy brain trust is shifting gears in 2020 to give state lawmakers tools to take on the issue.

The National Academy for State Health Policy late last year created a new center to help states address healthcare system costs. The center plans within the next month to release eight to 12 pieces of model legislation to help states lower healthcare spending, Riley said.

The new center is being funded by the Arnold Foundation. A spokesman for the foundation’s parent entity said the not-for-profit is expected to give the academy $2.2 million in grant funds in 2020 for several projects, up nearly $200,000 from 2019 funding levels.

The policy development will be guided by a group of 17 state health policy officials, lawmakers, and attorney general staff.

There is no industry representation in the working group, but Riley said the group is aware that healthcare system landscapes vary greatly state by state.

“All states have different situations, and different issues will lead to different policy solutions,” Riley said.