Health care affordability efforts must include everyone

OPINION – California’s Office of Healthcare Affordability (OHCA) recently adopted spending targets to slow healthcare spending growth and make it more affordable for Californians. The targets are ambitious and will be difficult to meet.  California’s health plans are the first group to undergo this scrutiny and will be the first in line for penalties. Yet we know that we have a responsibility to maintain health care affordability and ensure Californians can access high quality health coverage. However, health care affordability cannot be fully addressed without also addressing the largest cost driver in the health care system – hospital costs.

For those keeping score at home the California Hospital Association (CHA) opposed OHCA’s spending targets, while California’s health plans stood alongside consumer advocates, workers, and purchasers in support.

Now OHCA is beginning to work on how to measure hospital spending and costs. It is complicated by the multitude of murky ways in which hospitals receive their funding and a lack of transparency into their real funding and costs.

CHA subsequently launched a smear campaign attacking health plans. The timing of the campaign launch coincided with OHCA’s action to adopt the statewide spending targets—which we suspect was an attempt to deflect attention from the skyrocketing costs of hospital care.

Unfortunately, the public has very little insight into what is driving hospital costs so high. We do know that hospital costs account for 37 percent of overall healthcare spending. We also know that commercial health plans in California are paying above 300 percent of what Medicare would have paid for the same service at the same facilities, and hospitals are regularly marking up in-patient services and prescription drugs by as much as 675 percent.

Even though hospitals are now required by law to publicly post the costs of their services, many are not complying with these policies.

Why are hospital prices so high and how can we slow this growth? These questions cannot be adequately answered until we have more information, information that OHCA is working on acquiring, and that we suspect some hospitals will try and sidestep. In contrast, California health plans are tightly regulated, efficient and maintain low administrative costs, low profit margins, and must adhere to extensive rate filing and transparency requirements. Health plans are required by law to spend 80-85 cents of every premium dollar on medical care.  Health plan premiums are directly tied to the cost of medical care and hospital costs account for the largest portion.

Although there is little debate that the pandemic was difficult for many hospitals, especially for those in rural areas, many of which are still struggling financially, most California hospitals have recovered financially. Health plans stepped up in numerous ways during the pandemic to help hospitals in their time of need, including providing billions of dollars in emergency funding and grants to help stabilize them. Health plans also currently provide over $4.5 billion in capitated payments to hospitals each month regardless of patient utilization. And we are committed to working with our hospital partners to find solutions to the broader problems that deserve more attention and solutions, such as addressing provider workforce shortages, and expanding the number of available beds and increasing government reimbursement rates for skilled nursing facilities.

California’s hospitals do critical work and are very important to all of us.  There are some legitimate reasons why hospital costs are so high. We should be prepared to have an honest and open discussion about it. However, judging from CHA’s recent actions, they are not ready for it.  It’s time to end the distractions and get to work improving our health care system.

Charles Bacchi is the President and CEO of the California Association of Health Plans