Governor Newsom aims to contain California health care costs
Instead of relying on the market or the courts to control health care prices, Governor Gavin Newsom wants to keep costs below a certain level.
SACRAMENTO, Calif. — Frustrated with the amount they were paying for health care, two groups of California workers sued one of the nation’s largest hospital systems. A group has won a settlement of half a billion dollars. The other lost in court.
Both cases took nearly a decade to resolve, highlighting the difficulties that patients and their employers often face when trying to rein in ever-increasing healthcare costs.
Now, instead of relying on the market or the courts to control health care prices, California Governor Gavin Newsom wants to order hospitals, doctors’ offices and state insurance companies to maintain their costs below a certain level. If they don’t, the state could impose a hefty fine.
That’s the goal of the proposed Office of Health Care Affordability, which is part of Newsom’s $286.4 billion budget proposal. At least four other states – Massachusetts, Maryland, Rhode Island and Oregon – have similar offices. But none are as comprehensive as the one offered in California. The big difference: California would be more willing to punish companies that charge too much.
“If we could get everyone to really voluntarily look at how they run health care, they would have done it by now,” said Jim Wood, a Democratic member of the state legislature who supports the proposal. “We’re seeing health care costs rise at twice the rate of inflation over the past seven years, and that’s just unsustainable.”
When it comes to health care prices, patients and their employers have little bargaining power. Often, patients don’t know how much a procedure or treatment will cost until it’s completed. A wave of hospital mergers and acquisitions has diluted competition in the market, making it easier for providers to raise prices.
The impact on consumers has been brutal. Between 2002 and 2017, monthly health insurance premiums in California for people who get health coverage through their employer rose 249%, more than six times the rate of general inflation, according to an analysis from the California Health Care Foundation, a nonprofit organization working for universal health care coverage.
Last year, about half of Californians said they skipped or delayed certain types of health care because they couldn’t afford it, according to a survey by the foundation.
The progressive wing of the Democratic Party has attempted to address this problem by urging the legislature to adopt a European-style health care system, where taxpayers pay for most things and private insurance is relegated to a role of support for elective procedures.
But Newsom, while campaigning for a so-called “single-payer” health care system when he first ran for governor in 2018, instead spent much of his first term trying to establish the Office of Health Care Affordability. Since the biggest hurdle to a single-payer system is money — by one estimate, California spends $517 billion a year on health care — Newsom sees this office as a way to contain costs before to ask the taxpayers to finance everything.
“It elevates a very important, what I like to call, ‘single payer principle,’ which is to control costs and create a lot of transparency about what consumers are getting,” said Dr Mark Ghaly, Secretary from Newsom of the California Health and Human Services Agency.
Patients and their employers have sought relief from high health care prices in court, including in two high-profile lawsuits against Sutter Health, which operates 24 hospitals in Northern California. The company settled a lawsuit with a group of workers in 2019, which also included a court-approved monitor to ensure the company controls its prices. A federal jury ruled against the other group of workers last week.
Health care advocates say the two lawsuits underscore the need for the Office of Health Care Affordability, which “will try to address the problem holistically rather than just pursuing one market failure after another.” said Anthony Wright, executive director of Health Access. , California, a consumer advocacy group.
Sutter Health spokeswoman Amy Thoma Tan said the company is “relentlessly committed to affordability,” saying the hospital system has kept its health plan increases “in the low single digits.” over the past eight years.
Installing the desk will be tricky. The bureau would collect a lot of data from across the healthcare industry. Some of this data would be public, but much of it would remain private to protect certain proprietary information that companies want to keep secret. An eight-member board, made up of experts appointed by the governor and lawmakers, would then set cost targets for each geographic region of the state.
The California Hospital Association is concerned that the bureau is unable to distinguish between ‘good spending’, such as that spent on mental health care, and ‘bad spending’, such as duplicate medical records or overly complex documents . Additionally, it says 45% of California hospitals are already operating at a loss, and another 15% are barely breaking even.
“Caution is needed when trying to create affordability by simply capping spending,” said Jan Emerson-Shea, spokesperson for the association. “It does nothing to address the true cost of care.”
The California Medical Association, which represents doctors, said health care costs remain too high and there is still a need to address affordability. But Dr. Robert E. Wailes, its chairman, feared the proposal could unintentionally drive up prices by causing more healthcare providers to merge. He said the group will work to ensure the proposal “targets the entities that are responsible for the largest cost increases”.
The proposal is still a long way from becoming law, as lawmakers, consumer advocates and health lobbyists all negotiate over how the office will operate. Wood, a Democratic assemblyman, said the health care industry was pushing to exempt their various interests.
“Nobody wants to take responsibility or take their part in the problem,” Wood said. “The biggest obstacle is people trying to find a way out of it. And what we’re trying to do is keep everyone in it.”
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