Senate Clears Hospital Price Controls for Public Worker Health Plans

The Oregon Association of Hospitals and Health Systems successfully lobbied to kill a measure to pay property taxes on clinics, a bill expanding hours at ambulatory surgery centers and a measure to make nonprofit hospitals to pay more on charity care -- but intense lobbying failed to block an end to price-gouging at OEBB and PEBB.

Sen. Richard Devlin, D-Tualatin, overcame fierce lobbying from the hospital industry to shepherd a cost-containment bill through the Senate, saving the state $1 billion over the next decade, in part by eliminating hospital price-gouging of the health plans of state workers and teachers.

“This was a bipartisan and bicameral product,” Devlin said Thursday. “It’s a very good product and it will lead to reductions in state spending.”

The Senate approved the measure on a 17-12 vote, with Sen. Jackie Winters of Salem the lone Republican supporting the bill along with every Democrat except Sen. Sara Gelser of Corvallis. Senate Bill 1067 passed the House by the thinnest of margins, 31-28, with five Democrats opposing but the support of Rep. Greg Smith, R-Heppner, who had negotiated the package.

Devlin assured success for cost controls on hospital prices by baking the cost-containment package into the 2017-2019 budget -- without SB 1067, the budget could not balance. The bill fixes non-primary-care hospital reimbursements to 200 percent of Medicare for Public Employee Benefit Board and the Oregon Educators Benefit Board health plans. Increasing payments to hospitals has been a leading driver in increased healthcare costs, making it hard for the state to keep spending below its desired 3.4 percent cost growth.

Making the hospitals accept a price cap will help the state keep costs down by $190 million without forcing teachers and state workers to pay higher premiums or deductibles. But labor unions were also forced to accept a provision that ends double-budgeting if a spouse already receives insurance through PEBB or OEBB. The two boards will also merge into one entity, which unions have opposed.

SB 1067 exempts rural critical-access hospitals and will not take effect till 2019.

Passage of the cost controls looked in doubt earlier in the week. While most Oregonians had their mind on anything but state politics on the evening before the 4th of July, corporate hospital lobbyists packed the Committee on Ways & Means, where modern technology allows them to text lawmakers sitting behind the dais.

The Oregon Hospital Political Action Committee has spent $336,000 financing legislative campaigns since 2015 to back up its lobbying on the state Legislature. A bipartisan chorus of senators lamented that their “friends” -- the hospital industry -- had “stepped up to the plate” to support the Medicaid funding package, only to be punished with price controls for PEBB and OEBB.

However, while the increased hospital provider taxes will cut into hospitals’ bottom line compared to the last budget, that package was hardly a sacrifice. The Medicaid package will still provide a healthy return on investment to the state healthcare industry, bringing in about $1.5 billion in federal matching tax dollars, and without the Medicaid expansion, the Oregon Health Authority has warned that rural hospitals, which had been losing money before the expansion, could close.

At the same time, the Oregon Association of Hospitals and Health Systems was able to use its support for the Medicaid program to kill off three measures.

House Bill 2115 would have made hospitals better account for their charity care in order to keep their members’ nonprofit status and avoid paying taxes on their profits. Another measure could have made them pay property taxes for the for-profit clinics they have been buying up and taking off the tax rolls. House Bill 2664, which would have expanded hours at ambulatory surgery centers -- saving money for consumers and insurers, but increasing competition for hospitals -- was also killed.

Even as the hospitals racked up record profits after the passage of the Affordable Care Act, charity care dropped to record lows before edging up slightly. Consolidation of local healthcare practices not only deprives the public of tax dollars, it has driven up costs for consumers as hospitals can leverage greater payments from insurers -- including PEBB and OEBB -- than independent providers.

SB 1067 didn’t pass without a bit of sausage-making, however. The bill arbitrarily gives a special exemption to Coos County’s public Bay Area Hospital -- a move designed to win the support of Sen. Arnie Roblan, D-Coos Bay.

Winters promised to revisit the issue in the 2018 session, while Sen. Elizabeth Steiner Hayward, D-Beaverton, was disappointed that it seemed to perpetuate the fee-for-service model. The bill does have language encouraging alternative payment models, but she hoped that a hospital task force meeting in the interim would develop better recommendations than the provision in SB 1067.

A 2013 report commissioned by the state teacher’s union, the Oregon Education Association, showed that the Oregon Educators Benefit Board paid wildly different rates to different hospitals. The for-profit Willamette Valley Medical Center in McMinnville charged OEBB 411 percent of Medicare, while Legacy’s four Oregon hospitals received between 200 and 230 percent of Medicare.

Devlin said Medicare nationally pays about 80 percent of costs -- so double that would still allow a good profit.

However, Medicare’s prices in relation to the cost of care can vary a lot by hospital as well. A 2011 MedPac report showed that hospitals with competition often make a profit on Medicare, because competition forces them to be more efficient. Meanwhile, in places where one hospital dominates a market, the hospital loses money on Medicare because it can rely on overcharging private insurers and operate inefficiently -- a result of market failure.

Likewise, the OEBB study showed that the teacher’s health plan got better rates in the Portland area where there was more competition, but OEBB was held over a barrel to pay much higher rates in jurisdictions with a monopoly like Albany, Roseburg, Klamath Falls or Bend.

Reach Chris Gray at chris@thelundreport.org.

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