Take Care is pleased to present a series of posts offering thoughts on how Congress might address key issues in the healthcare system.

Although this series is supposed to focus on congressional action, I’m going to resist the prompt. With divided government, meaningful legislation to adjust or reform the Affordable Care Act is off the table. Democrats won’t vote for anything that dismantles the ACA, and Republicans won’t vote for anything that doesn’t.

I’m more optimistic about the possibilities for bipartisan cooperation on lower-profile matters, including tweaks to Medicare payments, funding for community health centers, and legislation to address surprise bills. And Democrats should by all means use the next two years to plan for the next round of health reform, as Harold Pollack has urged. But Congress won’t be at the center of major health-care policymaking in the immediate future.

The states will be—and not just those red states that, at the administration’s invitation, will seek ACA waivers of dubious legality. Blue states can also act. In the immediate term, they can move to shore up their insurance markets by enacting state-level individual mandates, as New Jersey has done, or limiting the sale of short-term, limited duration plans, like California has done.

The states can also think bigger. After speaking with leaders in states across the country, David Jones, Christina Pagel, and Chris Koller reported in the New England Journal of Medicine that “the greatest opportunity for bipartisanship on health care reform would be to focus on health care costs.” Reform won’t be easy: there are deep divisions (and much confusion) about which costs should be targeted.

But if there’s a consensus that the prices are too damn high, the states have the tools to do something about it. That’s because, for all the focus on national politics, the markets for health-care services are local. And nothing in the ACA, ERISA, or any other legislation strips states of their traditional authority to regulate those markets—up to and including capping the prices that can be charged for those services.

In the near term, overt price regulation probably isn’t in the picture. But I think we’re inching toward it faster than is commonly appreciated. Markets don’t work well when one or two players dominate them. And most health-care markets are highly concentrated: by one estimate, 90% of all metropolitan areas have high hospital concentration, 65% have high specialist concentration, and 57% have high insurer concentration. Predictably, prices in highly concentrated markets are higher—often much higher—than in more competitive markets.

Where markets fail, the pressure for state action grows. Already, the states are experimenting with initiatives that—although they aren’t sold as price controls—use government power to restrain health-care prices. Think of it as creeping price regulation.

Surprise billing

Surprise bills are surprisingly common, arising in about one in five emergency room visits and many elective admissions. You get a surprise bill when you go to an in-network hospital (or other facility), but receive care from a physician who is outside the network. Instead of billing your insurer, the physician will bill you directly, often at exorbitant rates. The practice is both abusive and scummy—patients usually can’t control who they see in a hospital, and it’s reasonable to expect that your ER doc or anesthesiologist is in-network.

A number of states have moved to address surprise bills. They’ve taken different approaches, but a handful—California, most prominently—specify that an out-of-network doctor can’t charge more than 125% of the applicable Medicare rate. (Proposed federal legislation would take a similar approach.) That’s a price control, albeit for a limited class of cases.

And if 125%-of-Medicare is thought to be a reasonable rate for surprise bills, why not for other charges in other contexts? Like, say, when patients (or their insurers) lack market power? Capping payments to a percentage of Medicare rates is an off-the-shelf solution to exorbitant prices, and one that states may continue to reach for in the future.

Antitrust

Earlier this year, Xavier Becerra, the crusading California attorney general, filed an antitrust suit against Sutter Health for price gouging. It’s a noteworthy development not because Sutter’s anti-competitive conduct is especially egregious (though it is), but because state attorneys general have historically been loath to bring antitrust actions against health systems. To my mind, it’s telling that Becerra—who, like all state attorneys general, surely has ambitions for higher office—thinks that picking a fight with a powerful, politically connected hospital system will yield electoral dividends. Other attorneys general might make the same calculation.

State-level antitrust enforcement bleeds more quickly than you might think into price controls. In Massachusetts, Beth-Israel Deaconess recently moved to acquire Lahey Health so it could compete with the powerful Partners Health. The Massachusetts Attorney General, Maura Healy, had to sign off on the merger. She approved it, but only after securing an agreement from Beth-Israel to cap any price increases for seven years. The Boston Globe reported that “[t]hese are the strictest limits ever placed on a hospital merger in the state.”

A growing threat of antitrust enforcement, combined with conditional settlements, suggests that we might see more of these quasi-voluntary price caps. As Fiona Scott Morton quipped, “[i]t looks to me like Massachusetts, which is 5 years ahead of other states on healthcare, is taking the regulation route over the competition route.” That’s how it looks to me, too.

Medicaid buy-in

Last year, the Nevada legislature approved a Medicaid buy-in plan for its residents, though it was vetoed by the governor. Another half-dozen states—Iowa, Massachusetts, Minnesota, Missouri, New Jersey and Washington—are reported to have Medicaid buy-in plans under active consideration.

The appeal of allowing your residents to buy into Medicaid is not hard to understand. It’s a familiar program that scales easily. Cost-sharing is minimal to nonexistent. Doctors are generally available, even if specialists are sometimes hard to find. Any stigma that Medicaid may have once had has largely dissipated. And, perhaps most importantly, Medicaid plans are cheap.

They’re cheap because Medicaid pays much less than other payers. Hospital and physicians aren’t happy about that, but few can afford to spurn Medicaid patients altogether. That’s why, though it’s not often recognized as such, a Medicaid buy-in offers a backdoor way to regulate prices. As people buy into Medicaid, more and more of them will pay Medicaid rates instead of privately negotiated rates for their care. Providers will be squeezed, and may be forced to drop prices to close to the Medicaid rates to assure some flow of privately insured patients. The upshot is that Medicaid rates will serve as a de facto set of price controls.

* * *

Over the next few years, I suspect this sort of creeping price regulation will proliferate. Maybe that’s good: the health-care system is rife with abusive market practices, and I for one would welcome genuine efforts to address them. But blunt cuts to health-care spending will have serious knock-on effects. Among other things, recent studies suggest that patients suffer—and die more often—when payments are cut.

So, tradeoffs. Right now, I don’t think Congress is up to debating those tradeoffs. But some states might be. Only time will tell.

@nicholas_bagley

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