One step forward

A bill bringing global budgeting and all-payer pricing was aired in an Illinois senate committee yesterday. This post includes my 3-minute statement supporting the measure.

Unless something miraculous happens in the November mid-term elections (like a Democratic Party-run, veto-proof Congress), there’s little chance we’ll see any major health care reforms at the national level before 2029.

I wish I could say there is a lot of action in the states. Unfortunately, passage of major payment and delivery reforms that can serve as a model for other states and/or the nation are in short supply.

Just two states (Rhode Island and Delaware) have implemented price growth caps to control year-over-year growth in insurance premiums, according to a recent policy brief from the Georgetown University Center for Health Insurance Reforms. A few states have adopted reference pricing for hospitals, where reimbursement rates are tied to a benchmark like Medicare prices.

Washington state, for instance, caps hospital prices for a state-run public option on its Affordable Care Act exchange to 160% of Medicare prices. Oregon and West Virginia do something similar for the plans they offer their state employees.

Last year, Vermont and Indiana became the first states to enact hospital price caps for the entire commercial market. “They did so by capping the prices that hospitals can charge, rather than the amount that insurers can reimburse hospitals—thereby bypassing federal restrictions on states’ ability to regulate self-insured plans,” noted the authors of a recent article in Health Affairs.

But few of those measures tie cost control to improved quality and outcomes, or free up providers to spend their money in ways that improve their populations’ general health. Nor has any state attempted to replicate the Maryland Total Cost of Care model, which puts every hospital in the state on a global budget (it covers both in-patient and out-patient services) and ties that to an all-payer pricing system, where every commercial payer pays the same price for the same service at any particular hospital.

As I’ve noted in a number of articles and GoozNews posts (see here, here, here and here, for instance), I firmly believe this is the most promising approach short of adopting a single-payer, Medicare for all system for both bringing overall health care spending under control while improving care quality, patient outcomes and the individual patient’s experience with the health care system.

Illinois State House in Springfield

Progressive legislators in a few states (like my home state of Illinois) are pushing bills that almost exactly replicate the Maryland model. Yesterday, the Illinois Senate Appropriations - Health Committee held a first hearing on a bill sponsored by Sen. Lakesia Collins with co-sponsors Graciela Guzman, Javier L. Cervantes, Mary Edly-Allen, and Rachel Ventura, all Democrats from Chicago and its northern suburbs.

I presented testimony in favor of the bill. I was limited to three minutes. Here are my remarks:

Good evening, Chairman Aquino and members of the committee:

I am Merrill Goozner, the former editor of Modern Healthcare, a former Chicago Tribune and Crain’s Chicago Business reporter, who now write a newsletter on health care issues with over 13,000 subscribers.

The first section of Senate Bill 3900 offers a comprehensive payment reform program that puts hospitals on budgets and equalizes pricing for commercial payers. It is that section of the bill I wish to address today.

This payment program is about affordability. It has demonstrated that it can bring health care costs under control without jeopardizing patients. In fact, it sets the stage for creating a better health care system by detaching funding from how much sick care is provided.

One state has led the way. Maryland is the only state in the country with a system like the one outlined in SB3900. Since fully implementing the system in 2014, Maryland’s hospital use of unnecessary services – both in-patient and out-patient – grew more slowly than the rest of the nation, even as key quality measures improved. It has saved payers, both public and private, billions of dollars. The state’s 30-day readmission and preventable admission rates were significantly reduced compared to other states.

Why has the Maryland system been so effective?

• Equalizing commercial pricing, where every insurer pays the same price for the same service at any individual hospital, substantially reduces wasteful administrative costs for both hospitals and insurers, which reduces spending and frees up dollars for clinical care.

• Putting providers on budgets empowers hospitals and providers to deploy their resources more effectively. When they are not dependent on the volume of services delivered, they have the freedom to invest more on prevention, primary care, care coordination, behavioral health, and community outreach. These are key to better health. All are woefully underfunded. This investment will not only improve overall population health, it is key to achieving the long-term cost control that patients, consumers, employers and taxpayers want and need.

• Global budgets, if appropriately adjusted for special needs, will stabilize financing for the state’s struggling safety net, community and rural hospitals; and

• For employers, who finance about three-fourths of private health insurance, it will lay the groundwork for making the system fairer, one where employers with older and sicker workers are not forced to pay an oversized share of the state’s total health care bill.

SB3900 is a long-term cost control program. The equal pricing system, when coupled with global budgets that grow more slowly than the rest of the economy, will allow state regulators over time to bring commercial prices more in line with Medicare pricing. This will reduce the growth rate in employers’ and employees’ premiums. It will leave more money in peoples’ paychecks. It will lower employers’ costs, and therefore, make Illinois more competitive.

We live in a time when people are looking for bold solutions to pressing problems. Passing this legislation will put Illinois in the forefront of how to deal with the nation’s health care affordability crisis. I hope you will give it serious consideration.

Thank you.