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This Week in Health Care Reform: February 15th, 2019

Rising costs propel health care spending to an all-time high; unnecessary ER visits lead to billions in waste; health system mergers lead to increased prices; and, the average drug spend for hospitals goes up.

Week in Review

Health Care Spending: Average health care spending for individuals with employer-sponsored coverage reached an all-time high in 2017, according to the latest analysis performed by the Health Care Cost Institute (HCCI).  That year, per person health care spending increased by 4.2 percent to just over $5,600.  Out-of-pocket spending also saw an increase of 2.6 percent.  Notably, HCCI’s research points to higher health care prices being responsible for the uptick rather than increased utilization of services.  The report echoes the findings of other recent studies which also show higher health care prices despite overall usage remaining flat.

Unnecessary ER Visits: Separately, a new report estimates that about 30 percent of visits to the emergency department among patients with chronic conditions are potentially unnecessary.  Released by Premier, the paper found that some 4.3 million such visits could have been avoided.  With the average cost of a visit to the ER coming in at just over $1,900, those visits add up to an additional $8.3 billion in wasted costs.  Pointedly, the study’s findings are in line with other data on chronic needs patients, who, research shows, are more likely to use emergency services and be admitted to hospitals owing to a lack of care coordination.  However, the transition away from this staid reimbursement model, which rewards episodic care, and towards one which places an emphasis on value-based care to better manage chronically ill patients in a coordinated way, promises to help address these wasted costs.

Hospital Mergers: In seeking to better understand what’s driving up costs throughout our health care system, attention needs to be paid to the supply chain.  Long overlooked, this sector represents some of the biggest resource allocations within our care delivery model.  Given the myriad arrangements health systems make to procure these purchased services, it should come as no surprise that, often, there’s little to no oversight governing these contracts.  In fact, one recent study estimates that hospitals overspend $39 billion a year on these purchased services, which account for approximately 20 percent of their total operating costs.  It’s against this backdrop that hospitals often cite the need to merge to better combat these inefficiencies.  But, new research actually makes the opposite argument, in regards to what happens after these health systems combine.  In fact, as hospitals and physicians have become more concentrated in recent years, not only do their prices go up, but, as it turns out, the quality of the care being delivered gets worse.  As such, experts have focused their criticism on large hospital systems’ ability to exact higher prices from payers and consumers, while benefitting from other anticompetitive practices

Drug Spending:
Between 2015 and 2017, the total drug spend per hospital admission ballooned 18.5 percent.  Put another way, the average hospital found itself faced with $1.8 million in additional costs as a result of rising drug costs.  Over that period, both outpatient and inpatient drug spending also increased, by nearly 30 percent and 10 percent, respectively.  Alarmingly, hospitals also found price increases of more than 80 percent across drug classes, including those for chemotherapy and anesthetics.  And, these price hikes – which are growing at a faster rate than overall health care costs and inflation alike – aren’t even tied to utilization.  According to research from the U.S. Department of Labor, these increases are primarily driven by higher launch prices and annual price increases.      

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