Prescription drug price control legislation being debated in the state Legislature could cut premium costs for public employees by 3 percent, and help the state maintain inflation levels below 3.4 percent.
Meanwhile, House Speaker Tina Kotek, D-Portland, continues to push a policy that would limit hospital reimbursements for non-primary medical care to 200 percent of Medicare. The policy would exempt low-volume rural hospitals, which have higher overhead costs.
The Public Employees Benefit Board, partly by instituting coordinated care models similar to the state Medicaid program, has kept inflation to a minimum for much of the past five years. The Legislature capped the board’s revenue at 3.4 percent annual growth, which had been more than enough to meet its expenses without cutting benefits or shifting costs onto state workers.
Last year, however, due largely to rising prescription drug and hospital costs, premiums for the self-funded Providence Choice plan, PEBB’s largest coordinated plan, rose 5.4 percent.
The cost of prescription drugs has risen 7 to 12 percent annually since 2014, and drugs now make up 14 percent of public employee medical spending, according to a December 2016 claims report from PEBB consultant Emery Chen of Mercer.
House Bill 2387 caps copayments for consumers and forces pharmaceutical manufacturers to rebate health insurers for excessive costs beyond the highest price that other developed countries have negotiated.
Actuaries from Milliman said that House Bill 2387 would reduce premiums by 2.75 to 3 percent, according to Oregon Health Authority spokeswoman Courtney Warner Crowell. This would cut that 5.4 percent inflation by more than half, to 2.4 to 2.65 percent, thus keeping PEBB under the desired 3.4 percent inflation.
The biggest-ticket drugs, for Hepatitis C and cancer, have been sold as wonder drugs, which their manufacturers use to justify charging Americans significantly more than Canadian or European customers. Spending money on drugs would potentially lead to medical savings for PEBB. But the vice-chairman of the board said that hasn’t happened.
“Theoretically, some of these drugs are curative,” said Shaun Parkman, the vice-chairman of PEBB and an SEIU 503 representative. “We’re not seeing a proportional decrease in other costs. We should be seeing lower utilization rates, but we’re not.”
HB 2387 has been pushed by Rep. Rob Nosse, D-Portland, who said Wednesday that his legislation had stalled due to an Oregon Senate that was too friendly to the pharmaceutical industry.
“It’s unfortunate that it’s stalled because my bill really gets at PEBB’s increased spending, which is rising medical costs,” said Nosse, who served on the PEBB board before winning a seat in the Legislature.
Savings for the Oregon Educators Benefit Board were less certain -- Moda Health was unable to calculate the savings to premiums from the rebate program. But since the state’s teachers face higher out-of-pocket costs than its state workers, HB 2387’s cap on copayments would rise 0.29 percent. If the other savings from PEBB hold, however, OEBB would still see overall savings of 2.5 percent.
Milliman said the copayment cap would have no impact on PEBB, since state workers already are not forced to pay large copayments if they need an expensive drug.
Hospital Cost Containment
Kotek first introduced House Bill 3418, capping hospital payments, early in the session, but the policy is now integral to a large omnibus cost-containment bill, Senate Bill 1067.
The legislative fiscal office calculated that the cap on hospital payments would save PEBB $52 million in the next biennium and $70 million in 2019-2021. The policy would save OEBB $47 million in 2017-2019 and $126 million the following biennium.
Unsurprisingly, the Oregon Association of Hospitals and Health Systems, as well as individual members like St. Charles Health System, which has a regional monopoly that allows it to set high prices in central Oregon, oppose SB 1067. They rely on the economic argument known as “cost-shifting” -- in which they claim, without evidence, that if reimbursements are restrained they will shift costs from the uninsured and low-paying government plans onto the commercial market.
Before the Affordable Care Act, some argued that the reduction in the uninsured rate would result in lower costs for all customers because of the elimination of this mythical cost-shifting, which runs counter to basic economics.
After the ACA took effect, consumers never saw the promised savings from cost-shifting, even as uncompensated care declined. But hospital profits did benefit, rising to 7 percent, at least initially.
That's because, with or without the ACA, hospitals like St. Charles negotiate the highest price they can get from insurers -- as would any capitalist enterprise, and they will continue to do so, regardless of how much PEBB pays them.
(Profits more recently have fallen at many hospitals in the state, which has been attributed to declining enrollments at CCOs and higher private insurance deductibles and co-pays that some patients have struggled to meet.)
Non-payment or underpayment of care may undercut a hospital’s bottom line; that does not mean health insurers pay more to make up for those claims. In fact, private payers may pay less as public payers force hospitals to become more efficient; the hospitals then pass on those savings.
A 2013 study in Health Affairs, analyzing data over 15 years, found that a 10 percent reduction in Medicare rates actually reduced the amount private insurers paid by 3 to 8 percent. Numerous studies have cast shade on the concept of cost-shifting and found even if it does exist, it is wildly exaggerated and that hospitals typically respond to lower payments by cutting costs. Hospitals with more competition become more efficient to make up for less negotiating power and lower rates from insurers, while those with monopolies keep prices high that insurers are forced to pay.
A 2011 MedPac study showed that hospitals without competition enjoyed a large profit from insurers, but lost money on Medicare because the high rates they got from private insurers allowed them to be inefficient. Conversely, high-competition hospitals, which are forced to be more efficient, have lower profits from private insurance but make a profit off Medicare.
“The evidence is clear: Today, hospital cost shifting is dead, and the spillover effect reigns. A consequence is that public policy that holds or pushes down Medicare and Medicaid prices (or their growth) could put downward pressure on the prices hospitals can charge to all its customers and, in turn, on the premiums we pay to insurers,” wrote health economist Austin Frakt in the New York Times.
“It’s natural, then, that hospital executives continue to promote the idea of cost shifting. The widespread belief they encourage — that it promotes higher premiums — could foster support for larger public payments. It may be a politically useful argument, but it is an economically flawed one.”
Reach Chris Gray at [email protected].
