Consolidation, underlying costs, and a lack of healthy competition contributing to Washington’s rising healthcare costs

The rising costs of healthcare services are a heavy burden for many Washingtonians, but lowering those costs is a complicated issue. Experts identified some causes for high costs, as well as some solutions that could provide some relief during the “Efforts to ensure transparency & promote affordability” panel at Thursday’s 2023 Washington State of Reform Health Policy Conference.

 

 

Jim Freeburg, founder and executive director of the Patient Coalition of Washington, said healthcare costs are the leading cause of bankruptcy in the state.

“The problem is healthcare is just too expensive,” Freeburg said. “And it is the drug companies, the hospitals, the doctors, it’s everybody if we’re honest about it. And there’s a lot of finger pointing. The fact is it’s just too expensive.”

Lowering costs will take more than the establishment of transparency initiatives, and should include provider rate setting, Freeburg said. 

“And that’s a really hard conversation for people to have but we’ve got to have it,” Freeburg said. “Because if we want to have fewer people in our state that have medical debt, if we want to have fewer people that go bankrupt because they have a heart attack or got hit by a car, we have to lower healthcare prices.”

Freeburg asked his fellow panelists to identify some of the causes for high healthcare costs and what should be done to make them more affordable.

Bill Kramer, executive director of health policy at Purchasers Business Group on Health, referenced a Kaiser Family Foundation study that showed that annual family premiums for employer-sponsored health insurance averaged $7,000 in 2001. By 2010, the cost had doubled to $14,000, and it is currently more than $22,000. Healthcare system consolidation is a primary cause of rising costs, Kramer said. 

“The reason prices have continued to go up is because the structure of the industry has changed over the last 10 to 20 years,” Kramer said. “Particularly if you look at industry consolidation.”

Kramer referenced an Office of Financial Management report, which showed that 27% of hospital beds in Washington were part of a health system in 2007. In 2017 (the most recent year for data), 73% of hospital beds were part of a health system. 

“This consolidation gives greater market power and the ability to raise prices,” Kramer said.

Gary Strannigan, vice president of congressional and legislative affairs at Premera Blue Cross, said 33% of Premera’s hospital expenditures went to six hospital systems in 2012. That number rose to 53% in 2022, he said.

“That’s a 60% increase in 10 years,” Strannigan said. “That’s significant and there’s other measures you can use to analyze the degree to which we’ve had consolidation already. What it means is hospital systems are in a position to argue for contractual provisions that are anti-competitive, anti-consumer, and invariably make healthcare more expensive.”

Kramer said greater transparency is needed in the healthcare industry.

“We need better data on prices as well as quality, access, equity, [and] patient experience so we can get a full picture [for] policymakers and everyone involved in trying to make things better,” Kramer said. “I think the first step is to try to restructure the industry so there is healthy competition.”

Healthy competition helps other industries strive, but it is hard to achieve, Kramer said. 

“It’s hard to structure the market that way,” he said. “It’s also hard on hospitals and health plans. It’s hard to make change and improve efficiency. But that’s what the healthcare industry owes the patients who receive care.”

Laura Kate Zaichkin, senior policy advisor at the Washington Health Benefit Exchange, said subsidization is a useful practice, but it is not a sustainable primary strategy for affordability. 

“We have to address the underlying costs,” Zaichkin said.

Zaichkin said the exchange was the first in the nation to participate in the RAND Corporation’s Hospital Price Transparency Study last year. 

“We were able to see what our customers are paying when they are accessing care through hospitals,” Zaichkin said. “If we look at Washington State overall, folks are paying about 174% of Medicaid in hospitals. If we look at exchange customers, who do not have an advocate, they’re paying 36% more. This is unacceptable and we know we need to address underlying costs in addition to providing subsidized financial assistance to folks.”

The exchange’s leading effort to provide quality affordable healthcare coverage to Washingtonians is through Cascade Care plans, Zaichkin said.

“We have high-value plans that the exchange curates for the individual market,” she said. “They have standardized benefits so it’s easy to compare and a little easier to shop on an overcrowded marketplace. They’re also lower, generally, in premium, they have lower copays, and, on average, $1,000 lower deductible for Cascade Care plans.”

The exchange also offers public option plans through Cascade Care Select plans, which have provider reimbursement expectations.