Catalyst for Payment Reform

What Xavier Becerra’s nomination as HHS Secretary could mean for employer-purchasers

What Xavier Becerra’s nomination as HHS Secretary could mean for employer-purchasers

As we learn that President-elect Biden has nominated Xavier Becerra for Secretary of Health and Human Services, the United States is in crisis between the COVID-19 pandemic and the economic downturn it produced.  Many employers are hard hit. Moreover, many of the employers now facing dire economic circumstances would be in a stronger financial position today but for years of overspending on health care services due to the unfettered spiral of health care price inflation, spurred by provider consolidation and unchecked market power.  Health care prices are, after all, the single biggest driver of health care cost growth today.  If anyone understands this well, it’s Becerra, who hails from consolidated Northern California.

Research suggests that if employers implement innovative health insurance benefit designs and selective networks of health care providers, they can connect plan members to higher-value providers and generate significant savings for themselves and their plan members.  These designs require transparency into health care prices and quality. They also depend on the ability to encourage or even steer health plan members to high-quality, lower-cost providers and steer them away from lower-value providers.  These network and benefit strategies have started to gain traction and are poised to take off.

Within Northern California, and in other markets where there is a significant provider consolidation, it’s a challenge for employers to implement these networks and benefit strategies.  For example, in Northern California where Sutter Health has acquired a vast number of hospitals and medical practices, prices are high and the availability of innovative health insurance benefit design and provider network options are rare. In the greater San Francisco Bay Area, we pay approximately 50% more for health care than residents in and around Los Angeles, where there are more hospitals and health systems competing for patients.

High prices in Northern California so alarmed employers and other health care purchasers that a health benefit trust brought an antitrust suit against Sutter Health.  Two years ago, as Attorney General of California, Xavier Becerra joined it.  Both groups sought not only financial damages, but also to require Sutter to allow for health insurance options built on price and quality transparency.  In December 2019, the parties arrived at a proposed settlement, including Sutter’s agreement to pay $575 million to employers and health benefit trusts affected by Sutter’s past conduct, and to cease their anticompetitive practices.  The parties were poised to meet before a judge to seek her approval and arrange the final details.  Then COVID-19 hit, the hearing was postponed, and, in June, Sutter took steps to back away from the settlement.

In their motion to the court, Sutter argued that the world wasn’t the same as the one in which they agreed to settle. They stated that they have lost millions of dollars as the revenue from elective services evaporated with orders to shelter in place.  Despite receiving a $1 billion advance from Medicare and more than $200 million in federal COVID-19 relief funds, they threatened that they would need to close hospitals and raise prices higher than the settlement allows.  The judge denied their motion for delay, though they have until March 2021 to select a monitor who will track Sutter’s behavior and check for adherence to the settlement for up to thirteen years.

The proposed settlement is still crucial in this COVID-19 world.  Without the protections outlined in the proposed settlement, the temptation of Sutter Health will be to try to recoup their losses on the backs of employers. The result will be more shuttered businesses, more layoffs, and further wage depression, which will in turn slow down our economic recovery.  Additionally, without the terms of the settlement that prohibit Sutter’s anti-competitive and anti-transparency practices, employers and other health care purchasers in Northern California, and their plan members, will be in a far worse position to control costs going forward.

During the economic recovery, we need competitive health care markets as a counterweight against health care price inflation.  With the economy struggling, employers and other health care purchasers have less money than ever to spend on health care and need every tool at their disposal to keep expenses under control.  Employers across the country will be watching to see if the Sutter case will serve as a warning to other dominant providers, or if anticompetitive behavior will be given a COVID hall pass.

As Secretary of Health and Human Services, Becerra’s understanding of these dynamics will inevitably shape his work on health care delivery and payment reforms, policies regarding transparency of price and quality information, and much more.

Photo by David Everett Strickler on Unsplash.

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