Nosse and Beyer Seek Rate-Setting Commission for Hospitals

Working with SEIU, legislators have re-introduced a bill to create a public utility-style commission to ensure fair, even and transparent costs for medical services at Oregon’s hospitals. A similar system exists in Maryland with good results, but a former director of that commission advised against mimicking their system and expecting it to work.

Rep. Rob Nosse, D-Portland, is crusading this session against the high cost of medicine, first with a bill to rein in pharmaceutical costs and now with legislation that goes after another big cost-driver: hospitals, which charge health insurers considerably more in Oregon than in other states.

Nosse and Sen. Lee Beyer, D-Springfield, have introduced House Bill 2679, which would implement a rate-setting commission similar to the Public Utility Commission to determine a fair price for hospital services. A commission has been tried in other states, including Washington, and is currently used in Maryland, where hospital care costs for private insurance are much cheaper.

Nosse argued that the cost of healthcare services in the state vary widely by hospital, and, while some rural hospitals such as Coquille Hospital on the South Coast struggle, others are thriving, like the for-profit Willamette Valley Medical Center in McMinnville, which posted a 33 percent profit.

A recent study from the Oregon Health Care Quality Corporation, known as Q Corp, showed that Oregon hospital costs for private insurance were 17 percent higher than the average when compared to four other states, even as the amount of uncompensated care provided by these hospitals evaporated with the advent of the Affordable Care Act. The ACA added 400,000 people to the Oregon Health Plan and prohibited commercial insurers from refusing to sell policies to people with pre-existing medical conditions.

“The system is irrational. It’s not a true market,” Nosse said.

“Maryland has kept costs down better than all the other states put together,” said Beyer, who served as the director of the Public Utility Commission and on the board of McKenzie-Willamette Hospital in Springfield before becoming a state senator. “The process of negotiating prices (with insurers) drives up the cost. Nobody knows what the true cost is.”

The pair of legislators introduced a similar bill with the backing of Service Employees International Union Local 49 two years ago, and they admitted the bill they’ve introduced this year still was not ready for prime time as written -- but they asked House Health Chairman Mitch Greenlick, D-Portland, to support a work group to investigate the issue and report back before 2019.

Executives from Adventist Health and Salem Hospital testified against HB 2679, as did a former director of the Maryland Health Services Cost Review Commission, Robert Murray.

Murray spoke to the committee over the telephone, and his East Coast accent seemed to throw cold water on the concept, in particular his assertion that Maryland hospitals like the system because, with a waiver from the federal government, they receive $2 billion more in Medicare payments each year than they would otherwise.

“That extra payment has galvanized support for the system,” Murray testified. “It would be virtually impossible to get that rate of payment.”

Murray joked that even getting a Medicare waiver would be difficult in the current national environment. “You’d probably have to wait for a tweet from the president to know if it was approved.”

Murray also quoted Homer Simpson, who like Beyer, hails from Springfield: “They have a saying about the rate commission in Maryland: ‘It’s both the cause and solution to all life’s problems,’” he quipped. “Rate-setting can be incredibly complicated. A lot of states have dropped rate-setting.”

Maryland is the only state that has a Medicare waiver, which allows it to set Medicare rates for each hospital, along with rates for Medicaid and private insurance. He said that Washington state had passed a rate commission in the 1980s but was unable to make it work without the ability to set Medicare rates along with rates for other payer types.

Rep. Knute Buehler, R-Bend, an orthopedic surgeon who was familiar with the Maryland system from his previous work at Johns Hopkins Hospital in Baltimore, opposed HB 2679, saying it was only possible because the research universities have a duopoly in the state, which is very different than Oregon’s environment.

“Price-fixing works in the short-term, but in the long-term it always creates inefficiencies,” he argued, as the hospitals find sources of profit outside the boundaries of the commission, or they keep patients longer than are needed to make more money.

Nosse countered that, in fact, some hospitals, such as St. Charles in Bend, have monopolies, and smaller Oregon cities like Bend are not going to see new hospitals popping up to provide competition that keeps costs down.

Last week, Oregon Health & Science University economist John McConnell said Oregon’s unique environment is likely resulting in increased costs for private insurance: Oregon has multiple health insurers competing and contracting with hospitals that have monopolies in some local markets and are consolidating in others

In other states, such as Michigan, where one health insurer dominates, costs are kept down because all the state’s hospitals must contract with that insurer. But their bargaining position is inverted in Oregon. Hospitals can risk not contracting with some health insurers, giving them the power to charge much higher rates.

“Insurers don’t have a lot of room to negotiate with the providers,” McConnell said.

McConnell also refuted a talking point of hospitals that Medicare causes them to “cost-shift” -- charging private insurers more to make up for low government compensation rates, McConnell said that there is no evidence that shows a parallel between low Medicare reimbursements and high costs to health insurers.

Chris Gray can be reached at chris@thelundreport.org.

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