October 4, 2018

NY Times op-ed: Blame hospitals for high ED prices. Hospitals: Nope.

Daily Briefing

    A University of Southern California (USC) professor in a New York Times op-ed lays the blame for high U.S. health care costs on hospital EDs—but hospital groups are pushing back, saying it's actually insurers that set the stage for ED payment rates.

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    In the op-ed, Glenn Melnick, a public policy professor at USC and a researcher at USC's Schaeffer Center for Health Policy and Economics, wrote, "There are many reasons Americans pay more for health care than citizens of any other country. But one of the most powerful forces driving cost increases is buried in a little-known set of regulations concerning [ED] care."

    According Melnick, most states require health insurers to cover emergency visits to the nearest ED, even if the closest hospital is out-of-network. These regulations are intended to ensure individuals have timely access to emergency care, but Melnick argued that they have also "granted hospitals what is essentially a monopoly over emergency room patients, allowing them to charge basically whatever they want."

    Melnick wrote, "Increasingly, hospitals have learned that if they demand higher prices from health plans and do not get them, the hospitals can just cancel their contract. They will still get paid for treating emergency patients under those plans—and in fact will be paid more, because those patients will be out of network."

    He cites California as an example, noting that total billed charges by hospitals in the state increased from $263 billion in 2002 to $386 billion in 2016, but "the number of patients admitted [to hospitals] did not increase." According to Melnick, billed charges to health insurers increased from $6,900 per day to more than $19,500 per day. Melnick writes, "This astronomical run-up in billed charges gave California hospitals leverage to demand and receive much higher prices for in-network patients, too. The average price paid by health plans to hospitals for all care grew almost 200%—to $7,200 per day from $2,500. In effect, they could threaten: Pay us $7,200 per day to sign a contract or $19,500 per day for emergency admissions without a contract."

    And these billing practices, Melnick argued, have direct implications for patients. He explained, "Whenever insurance companies have to pay more, patients do too, in premium increases. In some cases, patients have to pay inflated out-of-network [ED] charges directly to hospitals in the form of 'balance billing.'"

    AHA: Hospitals don't have a monopoly on ED prices

    Melnick's argument spurred AHA President and CEO Rick Pollack and Carmela Coyle, president and CEO of the California Hospital Association, to publish their own post pushing back against the arguments.

    They noted that Melnick's chair in health care finance at USC is funded by Blue Cross of California, and they argue that Melnick's op-ed relied on "unnamed regulations."

    They wrote, "Melnick's view grossly misrepresents the balance of power among hospitals and health insurance companies in negotiations." They explained, "Government payers, Medicare and Medicaid, set how much hospitals are paid for emergency care [for patients insured by those programs]—there is no negotiation," and those rates "are far below the actual cost of care." They continued, "Private health insurance companies, however, negotiate whether they will contract with hospitals and the rates to be paid. And those rates typically take those government underpayments into account."

    While Melnick argues hospitals have leverage over insurers and thus indirectly raise insurance premiums, Pollack and Coyle argued, "Insurance companies, especially in California, have power"—and that power is, they argue, tied to higher premiums.

    "In fact," they write, "a recent study in Health Affairs found that insurer competition is the most important factor associated with higher insurance premiums," citing the study's conclusion that "[i]n 2018 premiums were 50% … higher in rating areas with a monopoly insurer, compared to those in areas with more than two insurers" (Pollack/Coyle, American Hospital Association, 9/19; Porter, HealthLeaders Media, 9/20; Melnick, New York Times, 9/5). 

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