Hospitals targeted in healthcare affordability debate on Capitol Hill

Large employers are looking to put much of the impetus for improving healthcare affordability on hospitals, according to congressional testimony Wednesday.

“Many of the biggest cost increases are driven by hospitals and health systems and can be addressed today,” Elizabeth Mitchell, president and CEO of the large-employer coalition Purchaser Business Group on Health (PBGH), said for a hearing conducted by the House Energy and Commerce Committee’s Subcommittee on Health.

The extent to which hospitals bear the burden of future policies to improve affordability could depend on whether members of Congress agree with PBGH’s perspective. Many of the concepts have bipartisan support, although Democrats on the subcommittee sought to turn the focus toward criticizing developments such as the passage of H.R. 1 (the One Big Beautiful Bill Act) and the expiration of enhanced subsidies for buying Affordable Care Act (ACA) marketplace insurance.

Representing hospitals at the March 18 hearing, Rick Pollack, president and CEO of the American Hospital Association (AHA), said exposing hospitals to cuts in the name of affordability would be detrimental to all parties.

Already, “hospitals are balancing significant cost pressures as they treat a sicker and more medically complex, aging patient population, all while operating with persistent misalignments in how care is financed and reimbursed,” Pollack said in his written testimony.

Wednesday’s hearing was the third in a series that the subcommittee has hosted to examine healthcare affordability. Previously, the group heard from insurers and various stakeholders in the pharmaceutical supply chain.

Consolidation and market power in healthcare pricing

Mitchell said top drivers of healthcare cost growth, as reported by PBGH members, include Medicare Part B drugs, high-cost claims, emergency room visits, inpatient hospital admissions and outpatient facility care.

These trends are driven in part by hospital consolidation, she added, noting that “even the largest employers often do not have market power to address all of the varied and complex incentives that prevent us from reducing healthcare costs” in consolidated markets where contracting approaches such as anti-tiering and anti-steering clauses are prevalent.

She said prices rise after consolidation, with no corresponding benefit to quality or access.

Pollack was asked about the recently announced mega-merger between Sutter Health and Allina Health. He said he does not see a reason for concern with the proposed combination, especially because the systems are based in different geographic areas.

“I would point out that when we come together as systems, we are often providing a lifeline to rural hospitals that are in great jeopardy,” he said.

He said the AHA’s research shows operating costs decrease by 3.3% after organizations unite as a system. Revenue also declines per adjusted admission, suggesting purchasers should be realizing savings.

“The issue is that doesn’t always get passed on to the patient because there’s an insurer in between that sets the rates,” Pollack said, referring to hospitals as “price takers.”

Some published research indicates outcomes improve after combinations, including in metrics reflecting complications and mortality, he added.

Vertical integration raises concerns about referral patterns and cost control

Vertical integration, including between hospitals and physician practices, also can have adverse consequences, panelists said.

Large employers “want to pay more for independent physicians because we know that it leads to better referrals based on quality,” Mitchell said. “It leads to lower costs.”

Some health systems pressure their employed physicians to keep referrals within the organization, according to one panelist.

“I have plenty of colleagues who work for large health systems and have told me that they have faced this, where it may be things like losing a parking space or not getting a bonus if they allow what is commonly referred to as ‘leakage’ outside the system,” said Anthony DiGiorgio, DO, MHA, a neurosurgeon.

The AHA’s research shows hospitals are responsible for only 6% of the increase seen in practice acquisitions over the last four years, trailing private equity, medical groups and insurers, Pollack said.

Acquisitions by any of the above can pose concerns, Mitchell said. For example, vertical integration can skew incentives for insurers to negotiate lower costs on behalf of employers.

“Some actors in the insurance industry are now vertically integrated behemoths with tendrils in virtually every aspect of the healthcare system — including ownership of healthcare providers,” she said.

Site-neutral payment policy and physician ownership debate

Perceived drawbacks of hospital acquisitions of physician practices include a lack of consumer choice and higher costs for purchasers. The trend has triggered increasing calls to expand site-neutral payment policy.

“If you go in for an eye examination at a large system in my area, the cost is double what it costs when you come into my home office,” said David Aizuss, MD, a Los Angeles-based ophthalmologist and chair of the board of trustees for the American Medical Association.

Hospitals say such cutbacks would have unintended consequences. In his written testimony, Pollack said expansive site-neutral payment policies could require decisions by some hospital outpatient departments to reduce or eliminate services, especially in rural and underserved areas.

Another idea discussed during the hearing was ending the restrictions on physician-owned hospitals, as legislated in the ACA. Supporters of such a change say it would lower costs and offer consumer-centered care options.

Pollack was the only one of the six panelists to advocate for maintaining the ban, noting physician-owned facilities often lack emergency departments and other low-margin hospital services.

Price transparency as a policy lever

Among the most discussed policy-focused solutions during the hearing was how to better leverage price transparency. A good first step would be for CMS to strictly enforce existing requirements, given wide variation in compliance estimates since the regulations began in 2021, Mitchell said.

Transparency rules for hospitals and insurers are useful when rigorously enforced and combined with other data, Mitchell said. A PBGH data demonstration project has delivered “remarkable insights for purchasers on how the prices they pay compare to the market and what network selection, benefit design and direct-contract opportunities exist.”

She emphasized that price transparency data must be paired with quality and claims data to make it actionable in those ways.

“It takes the large purchasers to actually use that information to negotiate better rates,” but that can be “extremely challenging in consolidated regions,” she added.

What may happen in such markets, she argued, is that large systems see competitors’ prices and, in turn, raise their own.

For the individual healthcare shopper, complexity is substantial and unlikely to be solved by current or envisioned transparency policies, according to Pollack.

“Too many Americans are disadvantaged by health insurance benefit designs that expose them to high out-of-pocket costs that providers are then expected to try to collect from them,” he said.