The people who give President Donald Trump advice about economics think that limiting the provisions hospital negotiators put in their provider network contracting could save employers and workers a lot of money.
Hospitals use contract provisions that sharply limit competition for the hospitals and affiliated physicians in markets where about 24% of employer health plan enrollees live, according to a new report on hospital contracting released by the White House Council of Economic Advisers.
Dominant hospitals in low-competition markets and the hospitals' affiliated physicians probably account for 57% of employer spending in those markets, and banning the anticompetitive provisions probably would cut hospital prices in those markets by 18% and physicians' prices by 10%, the economists write.
If employers and plan participants received about 70% of the price reductions, that would decrease their health coverage costs by 4.1% to 9.2%, with a mid-range forecast of 6.5%, the economists estimate.
The economists predicted that the total savings would have a value of $20 billion to $35 billion per year, for average savings of about $606 per worker with individual employer-sponsored health coverage and $1,755 per family with employer-sponsored coverage.
"Once a dominant system can no longer bundle its facilities or prevent steering, competing systems gain access to patient volume they were previously locked out of, becoming more credible alternatives for insurers over time," the economists write. "This strengthens the insurer's threat of replacement in bilateral bargaining, further reducing the dominant system's negotiated prices beyond the immediate effect captured in the negotiated prices channel."
What it means: The White House has not put out a statement or press release about the report, but the new report could be a sign that the Trump administration will
The contract provisions: The White House economic team focused mainly on three types of contracting mechanisms:
◆ Anti-steering clauses, which prevent insurers from using copay levels or other incentives to encourage patients to use lower-cost providers.
◆ Anti-tiering clauses, which require insurers and plans to put a hospital and its providers in the most favorable plan tier, even if the hospital and its providers are more expensive than competitors and have lower quality ratings.
◆ All-or-nothing bundled contracting requires a plan that wants to put any of a health care system's hospitals and providers in the plan network to put all in.
"These three clause types typically appear together," the economists write.
The economists suggest that banning all three types of provisions would increase insurers' and plans' bargaining leverage, produce lower negotiated prices, help plans nudge patients toward lower-cost providers, and push prices lower as patients moved toward the lower-cost providers.
"Once patients have greater incentives to choose alternatives, prices will fall further as competing systems accumulate volume and become more credible alternatives for insurers," the economists write.
Reactions: Hospitals and their groups note that hospitals face enormous capital and labor costs and have to be prepared to handle everything from natural disasters, to uninsured people who come in with gunshot wounds, to women who go into labor during Ebola outbreaks.
They point to waves of hospital closures as signs that typical hospitals have trouble staying in operation under current reimbursement conditions.
America's Health Insurance Plans, a group for health insurers, praised the new report.
"Hospital spending now makes up the largest share of insurance premiums, surpassing $1.6 trillion nationwide," AHIP says. "This dramatic rise is fueled by hospital practices including anticompetitive consolidation, wide variation in prices for the same services and a growing private equity footprint in hospital systems."
The backdrop: The U.S. Department of Justice has challenged at least two big hospitals in recent years over what it alleged were anticompetitive contract provisions.
Implementing bans on steer, tiering and all-or-nothing network provisions may be tricky.
In one case, for example, a federal court has ruled that one state's effort to ban vision plan steering provisions affecting optometrists violated the plans' freedom of speech.
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