No major cost of living has increased more over the past twenty years than medical costs, especially hospital services. While healthcare reforms over the past two decades have dramatically increased access to health insurance and medical care, the issue of rising costs has mostly remained unaddressed.
The healthcare market has many inherent inefficiencies and many more we’ve built into it over the years, such as labyrinthine coding systems. Some now believe the solution is single-payer healthcare– replacing every private insurance plan with one government-run insurance plan.
While there are some advantages to such a system, there are many drawbacks. To the extent single-payer systems lower costs (and it’s not clear one would in the US), they do so through slashing wages and jobs, denying or rationing care, and by negotiating lower pharmaceutical prices. While drugs may become cheaper, our national physician shortage would become far worse, many lower-skill workers would be instantly unemployed, wait times for care would soar as lower direct costs would spike the quantity of health care demanded, and the rate of pharmaceutical innovation would drop sharply.
Instead of such a drastic approach, let’s first try going in the opposite direction: lowering healthcare prices through increasing market competition, lowering inefficiencies, and addressing the specific shortcomings of the system as it exists.
One of the largest obstacles to competitive healthcare markets is the lack of clear prices before service with which individuals can make informed decisions. How can you shop around for the best deal if no one can tell you how much they’re going to charge? How are high deductible plans supposed to lower costs if no one knows what they are?
In the absence of clear prices, many patients rely on whoever their physician recommends– even though they usually have no better idea than the patient. One study of the MRI market showed that reliance on doctor recommendations resulted in patients on average driving past six cheaper providers than who they actually received treatment from, resulting in 35% higher costs.
Research suggests upfront pricing rules save patients between 5-15% in costs for non-emergency procedures and spur price competition among providers. Providers would also benefit from upfront pricing as it shortens the time from procedure to payment.
Recent federal directives have cracked the door for upfront healthcare pricing. The CMS Hospital Price Transparency Rule requires hospitals to post insurer negotiated prices online, and a rule coming in 2023 directs insurance companies to provide explanations of benefits up front when asked.
Let’s build upon this federal framework, empower patients, and and create a truly transparent and competitive healthcare market:
- Let’s require all hospitals, clinics, and outpatient medical centers to both post their negotiated prices online, by insurer and for cash payments, and to submit these prices to a central, free database maintained by the Department of Health
- Let’s require all provider offices to provide a verbal explanation of their prices prior to procedures being performed, including potential additional costs for common complications, except in emergency situations
- Let’s make all provider bills which exceed these posted prices (on a per procedure basis) legally non-binding
- Let’s strongly punish providers who use this database to raise prices, treating pricing to competitors in the database as a per se antitrust violation
Washington’s Certificate of Need (CON) law allows existing healthcare providers to block new, cheaper competitors from forming. The law was intended to ensure access to unprofitable but necessary medical services, also known as indigent care. Most research suggests CON programs largely fail to achieve their goal of higher indigent care access, but they do force patients to travel further to receive the care they need, lower nursing home quality, see no reduction in mortality, and limit access to NICU care in existing hospitals.
In practice, the CON program is often used to allow hospitals to block low-cost ambulatory surgery centers, imaging centers, and other outpatient services from opening by arguing they aren’t “needed” in the hospital’s geographic market. This is a blatant example of regulatory capture suppressing competition and innovation while driving up prices for patients. This policy must be repealed.
Pharmacy benefit managers (PBMs) are companies hired by health insurance companies to negotiate drug prices paid by insurers to pharmaceutical companies. PBMs typically achieve lower prices for insurers by securing large rebates from drug manufacturers, sometimes covering a majority or more of the price initially paid, in exchange for placement on “formularies” which are lists of insurer-approved drugs. While this would be an illegal kickback in most industries, Congress and HHS exempted these rebates from federal anti-kickback laws in the 1990s.
Unfortunately, PBM-secured rebates are often not passed along to consumers, but retained– either by PBMs, pharmacies, or insurance companies– while manufacturers increase list prices to partially offset these rebates. Insurance premiums and coinsurance costs paid by patients tend to be based on these rising list prices, not on the post-rebate price paid by the insurer. PBMs retain these rebates partially on account of their market power: three large PBM companies dominate the industry.
Washington passed an important law in 2020 making PBM rebates more transparent, but did not address rebates failing to make it back to consumers, the extreme market power within the PBM industry, or insurance companies indexing rates to artificial list prices. Laws requiring 90% pass-through of PBM rebates to consumers and requiring coinsurance costs to be calculated on post-rebate prices are good first steps to unraveling this knot, but properly doing so will likely take far more involved efforts to re-design how pharmaceuticals are priced entirely.
There are two main types of pharmaceuticals: traditional synthetic drugs and biologics. Synthetics are laboratory-produced chemical compounds having a specific molecular structure. This structure is typically patented for a specific time period under a brand name after which a chemically-identical generic version of the drug is allowed to compete on the market, typically driving down prices dramatically.
On the other hand, biologics are pharmaceuticals derived from existing biological sources such as tissues, amino acids, proteins, and living cells. While biologics cannot be directly replicated due to their high complexity and the variation across biological samples, “biosimilar” drugs can be produced which have the same function and highly similar production processes, legally varying only in inactive components.
Approved biosimilar drugs are frequently allowed by the FDA to compete on the market after an initial patent period similar to generic drugs, with the potential to save consumers billions of dollars on essential but high cost pharmaceuticals such as Humira.
46 states have “interchangeability” laws which allow pharmacists to freely substitute prescriptions of biologics with lower cost FDA-approved biosimilar drugs. Washington passed an interchangeability law in 2015, but required that all substitutions come with prior approval from the prescribing physician, a restriction only made by four other states. Major pharmaceutical companies routinely make payments and provide gifts to half of all US physicians, a practice which has been consistently shown to increase physician prescriptions for branded drugs over generic and biosimilar competitors. Only by allowing universal pharmacist oversight in situations of interchangeability can we ensure patients receive their vital medications at the lowest cost possible.
The United States has fewer practicing physicians per capita than almost any other developed country– the only EU country with fewer doctors per capita than Washington is Poland– and the vast majority of physicians we do have are specialists in very narrow but lucrative fields. This simultaneously hurts access to health care and drives up costs through limited competition. This shortage of doctors was and remains an intentional policy choice thanks to bottlenecks such as Medicare’s residency cap (which underfunds residencies in western states) and the 1980-2005 moratorium on medical school admissions increases.
Washington has begun to address this issue with the opening of Washington State University’s new medical school, a program specifically designed for training new physicians from Washington who will stay in Washington. This program helps increase the supply of local physicians, but does little to direct them toward become general practitioners who could provide the maximum number of options to the maximum number of patients.
Let’s create a tuition waiver program for our state medical schools wherein students specifically training to be general practitioners receive a 50% reduction in tuition. This will reduce the financial incentive to specialize in narrow, high-pay fields by reducing the debt burden general practitioners start with relative to specialists. Further, let’s give these in-state general practitioner graduates first priority for residency slots under the state’s family medicine residency program.
Physicians in Washington often are required to sign multi-year non-compete agreements which remove their ability to open their own practice. As an example from my work, Bellingham Anesthesia Associates owned a monopoly on hospital anesthesia contracts in Whatcom and Skagit counties, forcing any anesthesiologist who wished to work in the area to agree to their terms. They required anesthesiologists to sign a non-compete agreement such that they could not open an independent practice for 18 months to 3 years after their contract with BAA. These contracts severely limit competition among providers and drive up costs to patients. While we were able to drop these non-competes down to nine months, these contracts inherently drive cheaper options for patients out of the market. I support a blanket ban on provider non-compete agreements.
Another example of anti-competitive, price-gouging contracts in healthcare are hospital anti-tiering and anti-steering clauses in contracts with insurers. Insurers often create tiered health plans which give patients discounts in exchange for choosing higher-quality providers or which steer patients to the lowest-cost providers regardless of system. Anti-tiering and anti-steering clauses from hospital systems force insurers to place all of the system’s hospitals in the most preferred tiers and prohibit steering patients outside their system, regardless of cost. These clauses increase costs to patients while lining the pockets of large hospital systems with more bargaining power. I support a blanket ban on anti-tiering and anti-steering clauses.
Washington’s long-term care tax, effectively an income tax, addresses a real problem in a poorly thought out manner. The problems with the program have become so evident that the Legislature has punted the program until after this year’s election, hoping to limit the blowback, and the “fixes” they’ve passed in the Legislature have barely changed the program at all.
Despite being voted for by the 44th District’s current representatives, an incredible 70% of the district’s residents voted to repeal the tax in 2019. The tax provides an unrealistically tiny lifetime maximum benefit, taxes you even when you will never be eligible for the program (such as if you retire out of state), and addresses none of the underlying systemic issues driving up long-term care costs.
The vast majority of people will never need long-term care coverage in their lifetime, yet everyone is being forced to either pay into this system or pay for a private plan they never wanted. To the extent a long-term care program should be run by the state, it should be run as a universal catastrophic care program, covering only lifetime costs above a specific threshold.
The fundamental issues in our healthcare system which necessitate a long-term care program begin long before long-term care is needed. Nor are these issues addressed by this program. Subsidizing this care may only increase its cost through higher demand.