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If the cost of food in the United States had increased since the Second World War at the same rate as healthcare, a dozen oranges would cost $57, a gallon of milk $160.
That’s according to Katherine Gudiksen, a senior health policy researcher for The Source on Healthcare Price and Competition, a project of the University of California Hastings College of the Law.
Gudiksen was one of six researchers, government officials and policy experts who presented to a bipartisan group of Connecticut state legislators on strategies that can be used to lower the cost of healthcare — and, by extension, health insurance premiums — in the state.
The speakers focused on what they identify as three major problems responsible for the skyrocketing price of healthcare: minimally-regulated hospital mergers, prescription drug costs and private equity investments that run hospitals and health systems into the ground.
In her presentation last Friday, Gudiksen quoted data from the Washington, DC-based nonprofit Healthcare Cost Institute showing that the annual spending in healthcare increased more than 18 percent between 2014-2018, the equivalent of $610 per American. Gudiksen attributed the increase to a government failure to regulate mergers of hospitals and private practices through antitrust laws and other policy interventions.
Gudiksen quoted several studies that have shown that hospital mergers increase premiums under the Affordable Care Act, increase hospital costs and lead to decreased wage growth for nurses and pharmacists. Additionally, she said, such mergers do little, if anything, to improve the care that patients receive, and sometimes even worsen it.
While acknowledging that Connecticut has more regulation of hospital and private practice mergers, Gudiksen said the state could create legislation that would prevent contract clauses requiring insurance companies to cover every hospital within a single health system, regardless of cost or quality of care.
Gudiksen also suggested that Connecitcut could create standards for affordability that could cap excessive pricing, something that Rhode Island already does.
“While [the Office of Health Strategy] currently oversees most mergers, there are a few holes in that oversight,” Gudiksen said.
Questioning private equity in healthcare
Laura Alexander, vice president of policy at the American Antitrust Institute, described the business model of private equity as “in many ways fundamentally incompatible with building resilient, high-quality competitive healthcare markets that serve patients.”
American Antitrust Institute is a Washington, D.C.-based nonprofit founded “to provide a counterpoint to conservative influence in antitrust enforcement and competition policy.”
Alexander told legislators that private equity investments typically lead to high prices and poor patient care. She quoted a study showing that private equity investments into nursing homes led to a 10 percent increase in deaths, and another that showed increased mortality after private equity firms bought up dialysis clinics.
Alexander said that because private equity purchases are often local and too small to attract federal attention, states are in an optimal position to scrutinize the purchases — and possibly ban them altogether.
Alexander estimated that about five percent of the private equity investments in outpatient services are in New England — she said she did not have specific numbers for Connecticut.
A state-level approach to drug costs
Drew Gattine, senior policy fellow for the Center for State Rx Drug Pricing at the National Academy for State Health Policy, suggested three laws that could offer models for states to reduce drug prices independent of federal action.
NASHP self-describes itself as a “non-profit, non-partisan, independent academy of state health policymakers.
The first law, Gattine suggested, would be to create an upper price limit on high-cost drugs based on the prices charged in Canada. He said that six states have introduced such a law.
According to data from the National Average Drug Acquisition Cost, a weekly-published list of drug prices from the Center for Medicare and Medicaid Services, if the eight top-selling drugs in 2018 were priced at Canadian level, consumers would get an average discount of 73 percent on their prescription drug costs. One of the most commonly used drugs in the U.S, Humira, costs $2,706 per syringe. In Canada, it costs $541.
The second law, suggested by Gattine, would penalize manufacturers that raise prices on expensive drugs without showing that there was clinical benefit to the drug.
The third law would allow a state attorney general to levy penalties on drug companies that increase the price of generic drugs by more than 15 percent in one year or 40 percent in three years. Four states have introduced this law, according to Gattine.
A Rhode Island model?
In 1997, Rhode Island adopted a law imposing a strict review process on hospital mergers, in which the Attorney General’s Office engages attorneys and economists in a review when a hospital proposes to transfer 20 percent or more of its assets to another entity. If a merger is approved, the Attorney General monitors the merger for five years to ensure that any conditions on the merger are met.
Miriam Weizenbaum, civil division chief in the Rhode Island Attorney General’s Office, said her office used the law to impose conditions on a merger pioneered by Prospect Medical Holdings, a national company owned by a private equity firm that, she said, had taken on excessive debt.
“It is showing what I think we found to be an effective tool, and a cautionary tale when it comes to private equity in healthcare,” said Weizenbaum.
Prospect Medical Holdings also owns two Connecticut Hospitals — the former Waterbury Hospital and ECHM in Manchester.
Rachael Davis, assistant attorney general in the Connecticut Attorney General’s Office, told legislators that, to her knowledge, the antitrust division in Connecticut had not placed the same conditions on Prospect Medical Holdings as has Rhode Island.
Davis said that an antitrust law adopted in 2015 gives her office more information regarding mergers of physician practices and hospitals.
“It provides us with a great deal of notice. Before that act we learned about mergers in healthcare… by the newspapers, from a concerned citizen or member … or from the FTC,” said Davis.
But Davis said that doesn’t necessarily translate into more regulatory action.
“We don’t have, within the “Notice of Material Change statute,” a broader goal to try and regulate healthcare and health providers,” she said.
Concerns of legislators
State Rep. Steve Meskers, D-Greenwich, pushed back against the idea that private equity should be prevented from purchasing hospitals.
“Private equity wants to go here because this is where the money is,” said Meskers, who argued that locking out private equity investors could lead to less competition within the market and therefore higher prices.
Alexander said that she knew of very few instances of positive outcomes when private equity invested in the hospital sector.
State Rep. Kerry Wood, D-Rocky Hill, who organized the forum, said she was concerned that laws regulating prescription drugs could be challenged in court, and that because Connecticut is a small state, pharmaceutical companies might opt simply not to sell certain drugs in the state.
Gattine said he didn’t know of any new models being challenged in court, but that it wasn’t impossible, given that the pharmaceutical industry was known for turning to the courts. But he said that laws attempting to regulate prescription drug costs had been introduced in states across the political spectrum and of various sizes.
“We’ve seen these laws introduced in large states, small states, red states, blue states, purple states … I think that small states have done important things, and taken on pharma and won,” he said.
Wood also raised a common counter-argument to the idea of capping prescription drug costs — that such laws would deprive pharmaceutical companies of funding for research and development.
Gattine said he didn’t believe that to be the case.
“The amount of profit that the pharmaceutical industry makes in the U.S. … covers their research and development costs,” said Gattine. “The argument that it will prevent new drugs from coming to market to me seems a little tortured.”
Wood said she felt that the state needed to look at its relationship with the pharmaceutical companies and how that relationship could be improved.
“It’s not really an us-versus-them,” said Wood. “We love these companies. They are helping us get through the pandemic. They are improving people’s quality of life. They are taking pain away … I think just us doing a better job at facilitating that relationship, too, is something for us to think about going forward.”