Payment Trends

Bipartisan policy group aims to slash hospital budgets

December 13, 2019 11:07 pm
  • Critics of hospital spending are targeting it as the largest and-fastest growing part of healthcare spending.
  • Proposed legislation would set hospital rates for all payers at Medicare rates in concentrated markets.
  • Hospitals can be expected to cut positions and salaries if their payments are reduced.

An increasing refrain in Washington, D.C., is that too much of national healthcare spending goes to hospitals. Now, some are proposing specific ways to slash such funding.

This week, a bipartisan group of policy advisers and members of Congress gathered in the nation’s capital to commiserate on rising hospital spending and strategize on ways to slash it.

Tara O’Neill Hayes, deputy director of healthcare policy at the right-leaning American Action Forum, highlighted that not only does one-third of national healthcare expenditures go to hospitals, but so does nearly 40% of spending on healthcare delivery.

Hospital spending is “one of the fastest-growing cost drivers per capita,” O’Neill Hayes said.

O’Neill Hayes and other critics blamed increased hospital spending on factors that include:

  • Increasing mergers and acquisitions
  • Increasing market dominance
  • Increasing charges
  • Lagging site-neutral payments
  • Increasing purchases of physician practices
  • Continuing opacity of prices
  • Growing executive salaries

The policy advisers, researchers and politicians said hospitals need to reduce their operating budgets. However, they cited numerous factors that they believe will keep hospitals from taking such a step without outside pressure, including:

  • A desire to provide more services for their communities
  • Use of growing budgets by executives as a measure of their professional accomplishments
  • Lack of political pressure due to hospitals’ role as large employers and to the opacity of hospital costs to constituents

How spending on hospitals may change

Chapin White, PhD, a senior policy researcher at RAND, co-authored recent research that found hospital commercial insurance rates are much higher than Medicare rates. Among the 25 states he studied, Indiana hospitals had the biggest such difference, and White said employers in that state are “irate” about the high prices.

And now some employers are moving to narrow hospital networks as a mechanism for negotiating lower rates, although they worry about employee “pushback” and that health plans “won’t back them up,” White said.

Rep. Jim Banks (R-Ind.), whose district is home to the hospital with the largest charge differential between Medicare and commercial health plans among all hospitals in the nation, according to White’s findings, has introduced legislation to mandate Medicare rates for all health plans paying hospitals in “highly concentrated” markets.

“What better place to start [to control healthcare spending] than the highest driver of healthcare costs, which is hospital spending?” Banks said.

Rep. Bruce Westerman (R-Ark.) added Banks’s legislative language to his own bill, which also would implement spending-control measures aimed at health plans and drugs.

Other approaches discussed as ways to cut spending on hospitals, included:

  • Tightening requirements on not-for-profit (NFP) hospital spending on community benefits
  • Preventing rural hospitals from bidding up labor costs for all hospitals
  • Requiring price transparency for “shoppable services”
  • Barring hospitals from setting contracting parameters with health plans
  • Setting pay limits for NFP hospital executives
  • Requiring open health plan rate bidding by hospitals

However, O’Neill Hayes said in an interview that the federal government is unlikely to implement steep hospital spending cuts.

White said in an interview that the increasing state efforts to tie hospital rates to Medicare in health plans for state workers could lay the groundwork for such actions by the federal government.

Where hospitals are expected to reduce spending

When faced with the need to reduce budgets, White said, hospitals can be expected to cut all three major types of outlays: administrative costs (25% of budgets), clinical costs (50%) and drug spending (25%).

Specific areas where hospital could cut costs, policy advisers said, include:

  • Reducing the number of employed nurses
  • Cutting salaries
  • Redirecting spending away from social determinants of health (SDOH)

“It’s wholly inappropriate that we are relying on hospitals to provide those types of services,” O’Neill Hayes said about SDOH initiatives. “Could we be doing that more efficiently and require hospitals to charge less — pay hospitals less — and let the people who are more appropriate provide those services?”



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