By KEN TERRY
Republicans and Democrats are seen as poles apart on health policy, and the recent election campaign magnified those differences. But in one area—private-sector competition among healthcare providers—there seems to be a fair amount of overlap. This is evident from a close reading of recent remarks by Health and Human Services Secretary Alex Azar and a 2017 paper from the Brookings Institution.
Azar spoke on December 3 at the American Enterprise Institute (AEI), the conservative counterpart to the liberal-leaning Brookings think tank. Referring to a new Trump Administration report on how to reduce healthcare spending through “choice and competition,” Azar said that the government can’t just try to make insurance more affordable while neglecting the underlying costs of care. “Healthcare reform should rely, to the extent possible, on competition within the private sector,” he said.
This is pretty close to the view expressed in the Brookings paper, written by Martin Gaynor, Farzad Mostashari, and Paul B. Ginsburg. “Ensuring that markets function efficiently is central to an effective health system that provides high quality, accessible, and affordable care,” the authors stated. They then proposed a “competition policy” that would require a wide range of actions by the federal and state governments.
The major difference between Azar and the Brookings experts is that Azar blames government regulation and they blame the consolidation of healthcare systems, most of all, for the relative lack of competition in healthcare markets. The parties agree, however, that healthcare prices are primarily responsible for driving up costs. U.S. healthcare spending rose from 2012 to 2016, Azar said, not because of higher utilization, but because of higher prices.
Azar favors consumer-driven plans coupled with health savings accounts to give patients an incentive to seek value and thereby reduce costs. But, while these plans have reduced unnecessary spending in the private market, he said, they haven’t been a silver bullet for private-sector employers that have used them. These plans can reduce unnecessary spending, but financial incentives for patients won’t build a truly competitive market, he said.
What’s needed, in his view, is less government regulation that drives provider prices up. For example, he said, CMS’s hospital outpatient payment system had impeded competition by paying hospital-owned practices more than private practices for the same services. He praised CMS for switching to site-neutral payments for all services offered by both hospital-employed and private practice physicians.
The Brookings experts supported the same regulatory change before CMS made it. In their report, they also said that states should repeal certificate-of-need laws, which inhibit new market entrants. And they favored reforming the 340b drug discount program for hospitals, which they said encouraged the facilities to employ physicians, especially oncologists who administer very expensive drugs. (CMS recently lowered those discounts by nearly 30%.)
Consolidation most to blame
However, the Brookings experts emphasized the role of industry consolidation in the steep rise of healthcare prices. Noting that these prices vary tremendously across the country, the report authors said that market power drives much of this variation. “Hospitals with little effective competition can extract higher prices in their negotiations with insurers, and they do,” they noted. “Hospitals without local competitors are estimated to have prices nearly 16 percent higher on average than hospitals with four or more competitors, a difference of nearly $ 2,000 per admission.”
Mergers of insurance companies have also driven up health costs, the paper said. The market share of the top four national insurers grew from 74% in 2006 to 83% in 2014. In the median state, the two largest carriers now control two-thirds of the market.
But that horse is out of the barn—and in any case, insurers don’t have much choice but to accede to the dominant healthcare providers in some markets. So the Brookings competition proposal focuses mainly on what can be done to increase competition among providers.
Among their more significant proposals, the Brookings experts would:
- Have federal and state agencies increase antitrust scrutiny of horizontal and vertical healthcare mergers
- Ask Congress to pass legislation allowing the Federal Trade Commission (FTC) to enforce antitrust laws on healthcare providers and insurers
- Revise the Medicare Shared Savings Program (MSSP) regulations to limit the influence of large hospitals and health systems over accountable care organizations (ACOs)
Neither the Brookings paper nor Azar talked about taking two other steps that could promote healthcare competition: 1) liberate doctors from the grip of hospitals; and 2) replace competition between insurers with competition between physician-led entities, such as ACOs and primary care-oriented medical groups. But those radical changes would be impossible without universal health coverage, and it’s unlikely that Congress will vote for that unless Democrats win back the Senate and the White House in 2020.
In a recent Health Affairs forum on health policy ideas for 2020 Presidential candidates, the liberal and conservative panelists agreed that Congress is not likely to do much on healthcare in the next two years. But in the area of competition, perhaps the left and the right can work together on some reforms if they don’t get into a tussle over Medicare for All. Some kind of legislation to lower drug prices is already in the air, and it looks like the two parties could also have a meeting of the minds on promoting competition in healthcare.
The Democrats aren’t going to suddenly support consumer-driven plans, which they view as discriminating against poor and sick people. But perhaps they might be open to changes in the Stark and AKA regulations to allow market-based innovations, and they might be willing to encourage states to throw out certificate-of-need laws. Similarly, the Republicans won’t be thrilled about the idea of a massive antitrust crackdown on healthcare mergers. But they might let CMS release practice-level cost and quality data that can help ACOs form networks and help consumers choose providers.
At least the two sides seem to agree on one thing: Only real competition among providers can constrain healthcare spending.
Ken Terry is a former senior editor of Medical Economics and is author of Rx For Healthcare Reform (Vanderbilt University Press, 2007).