Health care has put the deficit hawks in quite a pickle. Who doesn’t like health care? The industry and all the attendant sectors like biotechnology have provided the pretext for abandoning manufacturing to America’s trading partners. We are the brains, let the rest of the world be the brawn.
As manufacturing jobs bled out of congressional districts, especially non-urban (which you can read as "Republican"), health care employment became vitally important to political leaders. It is well known that President Barack Obama rejected advice to address health care services inflation in 2010 over concerns about job losses. Instead, he opted to require price disclosure in the Affordable Care Act. It went virtually unenforced for years.
In a refreshing change from the long-standing Republican policy of using the tax code to influence health care inflation, President Trump presented two important policies – the bipartisan price transparency and site-neutral payment. These policies have been promoted under the banner of “patient choice” or “competition” not deregulation.
Today, President Joe Biden’s administration has mimicked the job preservation policies of President Obama with a combination of active support of labor-friendly policies and lax oversight of mandatory programs.
(We aren’t letting the Republicans off the hook here as their pharmaceutical policies and the No Surprises Act have been predictable disasters.)
Naturally, health care services’ share of gross domestic product is expected to rise from 17.6% in 2019 to 20% in 2031. That increase is very likely an under count as it ignores things like research, information technology and a legion of consultants and rent seekers.
Worse, much of health care’s feast on the American economy is accomplished through deficit financing. The discipline that at least nominally appeared in the form of budgetary offsets of the Affordable Care Act has all but disappeared. PayGo, the primary device for deficit management, has been repeatedly waived since 2020.
Here is the problem, if Congress cuts spending on health care – about half of the 4.2T in National Health Expenditures is paid for by the U.S. Government – it risks damage to GDP. It also risks an increase in the unemployment rate, which has been a point of political pride. The exact same thing could be said of tax increases.
Something will have to be done, but what?
(I know, you have heard that before but I would argue something was done. The Prospective Payment System and DRGs significantly reduced the cost trajectory in the 1980s and 90s.)
Transportation Deregulation.
The best precedent I can think of – and I welcome other suggestions – is the deregulation of transportation of the 1970s and 80s. It is not a perfect comparison. The federal government did not allocate trillions of dollars to its function and print money to fund it.
It is similar, however, in the extent to which the federal government – and some states – attempted to regulate staffing, prices and operations. It is also similar in that federal regulation of transportation was inflationary, driving prices up and making airline travel more expensive and inventory management riskier.
The two major components of transportation deregulation in the 1970s and 80s were the Airline Deregulation Act of 1978 and the Motor Carrier Act of 1980. Both were the product of nearly a decade of negotiation between and among Congress, the White House and industry. However, the macro stagflation environment was probably a motivation for the public at large. In other words, consumers can get more demanding when their paychecks don’t go as far as they used to.
The result of that deregulation was more market entrants like the low-cost airlines of People’s Express and the proliferation of overnight carriers like FedEx, to name just two.
Health Care Deregulation: Call it Something Else.
Initially, President Donald Trump’s health policy was chaotic, a reflection of Republicans’ long-standing lack of interest and expertise in this area of domestic policy. There were the usual calls – an echo from the 1990s – for broader use of Health Savings Accounts in the name of “having skin in the game.”
(Never mind that prices have gotten so out of hand and distorted, skin was more like hide or right arm.)
The initial price transparency policy extended and created enforcement mechanisms for the ACA’s requirement that hospitals disclose their prices to the public in a machine-readable format. Compliance was spotty and inconsistent, but the policy established price discovery and a new approach for bending the cost curve.
The site neutral payment policy fared less well. For CY 2021, President Trump’s final hospital outpatient rule would have eliminated the Inpatient Only List over a three year period. Centers for Medicare and Medicaid would defer to physicians in determining the site of care based on factors they found relevant, such as patient characteristics. Eliminating the Inpatient Only List for Medicare beneficiaries was consistent with site-of-service optimization strategies being adopted by commercial insurers.
President Biden’s CMS rescinded the rule, citing patient safety concerns.
Picking Up The Ball
Throughout 2023, the House Energy and Commerce Committee, led by Rep. Cathy McMorris Rogers took up the charge under the rubric of “lowering the cost” of health care. Subcommittee hearings pursued a range of issues from reversing restrictions on physician-owned hospitals, enhancing price transparency, mandating site-neutral payments and better disclosure of common ownership interest. Full list here.
The hospital lobby has been working very hard against this legislative agenda. Their primary argument is that they are required to maintain certain staffing and technology levels at the ready. They don’t say it this way but what they mean is that they need high margin, high volume procedures to subsidize all the things they do or are required to do at a loss.
It is an argument that recalls the way in which the Civil Aeronautics Board regulated airline fares such that long flights would subsidize short hauls, something the Airline Deregulation Act ended.
In the end, the Committee was able to accomplish two things, more transparency on prices paid by insurers and site-neutral payment for clinic-administered drugs.
The Counter Move.
Currently, the Senate has no interest in the House’s work. Concerns about the effect on hospital finances are being raised by Senators from urbanized states primarily in the Northeast and California.
Meanwhile the Biden Administration has done its own work to resist. In Oct. , it released guidance for Medicare Advantage plans that required them to adhere to the Inpatient Only List. The White House has also proposed minimum staffing requirements for nursing facilities and a minimum operating margin for Medicaid home care agencies.To address one of the effects of protectionism, the Federal Trade Commission has initiated anti-trust investigations into Pharmacy Benefit Managers, hospital mergers and, most recently United Health Group.
In other words, House Republicans have abandoned their decades long effort to manage health care spending via the tax code in favor of price discovery and competition; deregulation, by other name. Democrats are sticking with protectionism that primarily supports hospitals while pursuing extreme levels of market distortion through antitrust initiatives.
Next up.
For the first time in a very long time – perhaps ever – House Republicans have set up their health policy in a non-reactive way. That can be very powerful and durable. Transportation deregulation delivered consumer choice in the form of more airlines, more routes, and lower prices but it did not stop there. It also made just-in-time inventory possible and home delivery of nearly everything.
There are a number of important hurdles to making health care deregulation a meaningful policy. Bipartisanship would be the first of those things. Price transparency is the first over that barrier but it needs more support from the bureaucracy.
The Lower Costs, More Transparency Act passed the House in Dec.with robust support from the minority, 320-71. The bill extends the Trump Administration policies on price transparency (shared too by the Biden White House) to laboratories, imaging centers and ambulatory surgery centers. It also requires site neutral Medicare payment of drug administration.
The ranking member of Energy and Commerce expressed support for other site neutral concepts but encouraged additional time and dialogue.
True policy development happens this way, slowly and methodically. What is more, there are but two paths out of the growth-crushing deficit we have, a sovereign debt crisis or growth-enhancing deregulation of one of the biggest drags on the economy, health care.
I have faith there will be bipartisan support of the former.
Emily Evans
Managing Director – Health Policy
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