What's Driving US Healthcare Costs? Stakeholders Weigh In

As conversations about healthcare spending and how to address it persist, different stakeholders have contrasting ideas of what contributes to the problem. During a Kaiser Family Foundation webcast, “Why are Health Prices So High, and What Can be Done About Them?” stakeholders from varying sectors of the healthcare industry weighed in on the issue.

Larry Levitt of Kaiser Family Foundation, and moderator of the panel, opened up the conversation by bringing attention to healthcare prices in the United States being higher than in other countries and growing faster than inflation, but he posed the question of whether these prices are higher than they should be, and asked about the reasoning behind the growth.

“The fact that prices are high or that they’re growing rapidly is not necessarily meaningful in and of itself, and I think we also have to be very careful to distinguish between prices for different kinds of products,” said Martin S. Gaynor, professor of economics and health policy, Carnegie Mellon University. “If there are new products that have extraordinary value and are very costly to develop, the drug is going to be expensive,” said Gaynor.

Having said that, Gaynor noted that prices are consistently higher in every part of healthcare where there is less competition, highlighting rising rates of consolidation. While not all consolidation is bad, there has been a lot of consolidation among close competitors, eliminating competition, driving prices up, and typically driving quality down, he said.

Kris Haltmeyer, vice president for health policy and analysis, Blue Cross Blue Shield Association, agreed, narrowing down on hospital consolidation and concern over the acquisition of physician practices and what it might mean over time.

“Hospital consolidation leads to care in higher-cost settings, especially in cancer care,” added Jenny Bryant, senior vice president of policy and research, PhRMA. “I’m much less worried about the $1000 drug where the physician makes $60 as an add-on than I am about $1000 drug where the hospital is billing at $2500 and collecting more for that medicine than the manufacturer.”

Haltmeyer also emphasized that there is a price issue, rather than a utilization issue. “If you look at the impact of healthcare costs over the past few years, it really has been about the prices. If you look at utilization across most categories of services from commercial health plans, you see utilization is flat across most categories, but prices are up.”

To address this, Blue Cross has been working to change how healthcare is paid for, specifically through value-based payment agreements, in which 62 million of Blue Cross’ consumers are enrolled.

Melinda Hatton, general counsel, American Hospital Association, disagreed with consolidation being a driver, citing overregulation as a larger contributor, and Bryant highlighted an access issue.

Leavitt then turned the conversation to cost-shifting, where Medicare and Medicaid payments go down and therefore costs on the private side go up. From the economic side, Gaynor said the scientific evidence hasn’t produced results showing that this happens. From the hospital side, Hatton explained, “When more than 50% of your patient population’s care is being funded by Medicare and Medicaid, and they’re underpaying, where do you magically think these dollars are coming from to make up the rest for the other patients?”

Levitt finished the discussion by asking, if we’re going to have drug pricing that includes list prices and negotiated rebates, what should happen to that money?

From the pharmacy perspective, there are some places where the rebating system has worked well, keeping net price growth fairly low on average, said Bryant. However, she noted a growing interest in beginning to move away from this type of system: “We don’t think it’s healthy for payers to be chasing rebates. We actually would like the competition to be based on something closer to the value of the medicine and to have the prices be a little closer to what the net prices are, and we think it’s a huge problem for patients when they get caught in the middle here.”

Bryant concluded by saying she thinks the rebates should make their way to the patient.