California Bill Would Cap Hospital Prices
Measure is a Back-Door Move Toward Single-Payer
California providers are up in arms as the state considers legislation that would allow the government to force hospitals into a fixed payment system in which commercial payers pay the same rates.
Introduced April 9, AB 3087 - the Health Care Price Relief Act - calls for the establishment of an independent, nine-member state commission to set prices for hospitals, physicians, and other providers in the private insurance market. Medicare rates would serve as a benchmark for base prices.
Essentially, hospitals and other provider groups would be treated like public utilities, with the state setting rates. The goal is to cap prices so hospitals can focus not on filling beds, but on improving population health. The commission is also tasked with reducing the cost of prescription drugs and medical devices paid for by private purchasers in the commercial market.
This looks like an end run around the barriers to a single-payer healthcare system—and indeed, it is. The idea is one of several contained in a roadmap that an Assembly committee designed for taking incremental steps toward a single-payer system. That committee has resolved that preconditions must be met before California can expect to be successful as a unified public system.
The single-payer bill (SB 562) that stalled out last year is still breathing, and hard-core proponents are not backing down. But realist progressives in the state don’t believe single-payer is feasible over the short-term and are willing to take baby steps to get there.
Proponents of the new price cap measure include labor and consumer groups.
“We are at a tipping point where change is necessary and possible with AB 3087,” said SEIU California President Roxanne Sanchez. “Californians shouldn’t have to be more worried about getting a healthcare bill than they are about getting a serious illness.”
Those voicing disapproval include California Medical Association President Theodore Mazer, who said AB 3087 would result in government-sanctioned care rationing.
“AB 3087 would cause an exodus of practicing physicians, which would exacerbate our physician shortage and make California unattractive to new physician recruits,” he said.
An exodus of practicing physicians? That might occur if rates were the only thing attracting physicians to the state, but surely the social, economic, and policy environment affecting the health of their patients is also a consideration. Not to mention that just 7 percent of medical lives in California are uninsured, which is incredibly low by comparison with other large states, including Texas (16 percent) and Florida (13 percent).
Furthermore, AB 3087 follows the lead of Maryland’s all-payer hospital payment system, which has been in place since the 1970s, and that state has not suffered an exodus of talented providers because of hospital rate setting. A study by the former director of Maryland’s Health Services Cost Review Commission found that Maryland residents have access to needed services, and Maryland’s hospitals have retained their reputations for clinical teaching and excellence.
For California to succeed under the proposed measure, the nine-member committee would need to implement a system of provider incentives to drive competition on value. Keep in mind that it would take a Herculean effort to get the bill passed, considering that it’s late in the legislative session and proponents also face hefty opposition from the single-payer-or-bust camp. But should the bill become law, it would take years for a new payment model to make noticeable changes in care delivery, if Maryland’s system is a gauge.
Regardless, California policymakers are on a path toward change and are ready to replace the fee-for-service system of competition that has for years fostered rampant cost-shifting and patient dumping.
Stephanie Hoops is a senior analyst at DRG and a regulatory expert whose work appears in Health Plan Analysis and Market Overviews. Follow Stephanie Hoops @StephHoopsDRG