gavel Opponents question thelegal authority of cities to regulate health care pricing, and theypredict a flood of litigation against the measures if they pass.(Photo: Shutterstock)

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At a time of mounting national anger about rising health care prices, the country's largest unionof health workers has sponsored ballot measures in two SanFrancisco Bay Area cities that would limit how much hospitals anddoctors can charge for patient care.

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The twin measures in Palo Alto and Livermore, sponsored by theService Employees International Union-United Healthcare WorkersWest, take aim primarily at Stanford Health Care, which operatesStanford Hospital and Clinics, the facility with the third-highestprofits in the country from patient care services, according to a2016 study.

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Related: Can California bring down Sutter Health'smonopoly?

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The union also is sponsoring Proposition 8, a statewide measure that would impose a cap onprofits for dialysis clinics. Together, the state and localmeasures seek to draw on public outrage over sky-high medicalprices. And, for municipalities, they amount to a novel anduntested effort to rein in those prices through the ballot box.

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“I've been in this field almost 50 years, and I've never seen alocal government regulating hospital prices,” said Paul Ginsburg,director of public policy at the Schaeffer Center for Health Policy& Economics at the University of Southern California. A numberof states set hospital rates in the 1970s, and two states, Marylandand West Virginia, do so today, he said.

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Opponents question the legal authority of cities to regulatehealth care pricing, and they predict a flood of litigation againstthe measures if they pass. The city councils of both cities opposethe proposals, arguing that local officials with no expertise inhealth care costs would be required to create a new bureaucracy toregulate them.

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Stanford Health Care officials say the measures could underminequality. “It would threaten [the system's] ability to providetop-quality health care to patients from Palo Alto and across theregion,” according to a September statement from the system.

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Ginsburg expressed skepticism. “Of course, you could cut ratestoo much and harm hospitals financially,” he said. “But if donewith intelligence, you could accomplish some price reductionwithout harming quality.”

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For the union, the ballot measures could help it gain leveragein future bargaining or organizing efforts with Stanford and otherhospitals. Stanford Health Care operates the largest hospitalsystem in both cities where the price cap proposal is on theballot. Stanford has opened, has acquired or is building healthcare centers with clinics and specialty services in Emeryville,Pleasanton and Redwood City — Bay Area cities where the SEIU-UHWtried but failed to place similar price-control measures on localballots.

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But union officials say their motive is simply to rein inprices. “Stanford Health is nonprofit. They don't pay propertytaxes or incomes taxes,” said Sean Wherley, an SEIU-UHW spokesman.“Taxpayers are subsidizing their operations and getting wrung outby over-the-top prices.”

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Stanford and other health systems have been on a buying spree inrecent years acquiring hospitals and physician practices, and thisconcentration of ownership has stifled market competition andfurther boosted prices for insurers and patients.

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The Palo Alto and Livermore initiatives, which also affect othermedical systems in the cities, would cap prices charged byhospitals and other health care providers at 115 percent of “thereasonable cost of direct patient care.”

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And there, some experts say, lies the rub.

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“What is a seemingly simple idea — limiting prices to 115percent of 'costs' — is neither simple in execution, nor concept,”said Benedic Ippolito, a research fellow at the American EnterpriseInstitute who studies health care financing. “What costs areacceptable? How will we stop providers from increasing costs asmuch as possible” to compensate for the cap?

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Under the initiatives, hospitals and other medical providerswould be obliged to pay back any charges above the cap each year toprivate commercial — but not government — insurers, and to patientswho pay for their own care. They would also owe the cities a fineequal to 5 percent of the excess charges. Fines collected by thecities could be used to pay for enforcing the laws.

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Stanford estimates that Proposition F, the Palo Alto measure,would reduce the health system's budget by 25 percent, forcing itto make cutbacks and possibly end essential services, said DavidEntwistle, the health system's president and chief executiveofficer.

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Livermore would need to spend $1.9 million a year on the staffrequired to implement Measure U — its version of the proposal — andwould likely incur another $750,000 to $1 million in legal andstartup costs, according to an analysis conducted for the city by Henry Zaretsky, a healtheconomist who has worked for the state and the California HospitalAssociation.

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Patients in the wealthy region expect high-quality services butalso can be savvy consumers and passionate voters. It is an openquestion whether the measures would pass.

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Industry consolidation is far more pronounced in NorthernCalifornia than in Southern California, according to a recent study from the University of California-Berkeley. As aresult, inpatient hospital prices in the north were 70 percenthigher and outpatient costs as much as 55 percent higher than inthe south. The price disparities, even within the NorthernCalifornia region, can be dramatic.

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For instance, independent doctors in the Bay Area arereimbursed, on average, a median $2,408.45 for a routine vaginaldelivery, which includes prenatal and postnatal visits, accordingto a 2017 Kaiser Health News analysis of claims data from Amino, a health cost transparencycompany. That compares with $5,238.13 for the same bundle ofservices for Stanford physicians (and $8,049.84 for doctorsemployed by the University of California-San Francisco).

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The higher cost of medical care also pushes up insurancepremiums for patients. Health plans purchased on the stateinsurance exchange were 35 percent higher in Northern Californiathan in Southern California, the 2018 UC Berkeley study showed.

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Earlier this year, California Attorney General Xavier Becerratook aim at medical industry consolidation and the high pricesassociated with it. He sued Sutter Health, one of the nation's largest health systems,saying it was systematically overcharging patients and illegallydriving out competition in Northern California.

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To C. Duane Dauner, a former president and CEO of the CaliforniaHospital Association, the ballot proposals are “a power play bySEIU-UHW to put pressure on Stanford Health Care.” The union wantsStanford “to be neutral when they try to organize employees inRedwood City, Emeryville, Pleasanton and Livermore,” said Dauner,who heads the campaign committee opposing both measures.

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Larry Tramutola, a veteran campaign consultant who is notinvolved on either side, agrees.

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“I don't think it has anything to do with controlling healthcare prices,” said Tramutola, who recently managed successful localinitiatives to tax sodas and ban menthol cigarettes. “It's aboutbargaining. Win or lose on this, other hospitals in other placeswill take notice and realize that SEIU is a formidable foe.”

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Protect Our Local Hospitals and Health Care, the campaigncommittee opposing the measures, has raised $4.2 million so farthis year. The union's political action committee has spent $1.5million in support of the initiatives.

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Kaiser Health News isa nonprofit news service covering health issues. It is aneditorially independent program of the Kaiser Family Foundation,which is not affiliated with KaiserPermanente. California Healthline seniorcorrespondent Barbara Feder Ostrov contributed to thisreport.

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