NJ hospitals, insurers join state effort to curb rising health care costs

[Greenbeard]

New Jersey becomes the latest state to try and adopt the Massachusetts model. Or rather the Massachusetts model lite, as this is an executive branch initiative with no legislation backing it, no teeth at all (relevant at a time, a decade in, when key stakeholders in Massachusetts are looking to add more teeth to its approach), and seemingly none of the tools that a place like Mass has to try and make this work.

But the bones of the approach are similar: collect and make public the data to pull back the curtain on where health care dollars are going, set a statewide target for health care spending growth, and through some mix of cajoling and public shaming try and get health care stakeholders to find ways to meet it.

Even with the major players (publicly) onboard, this will be an uphill battle. But it’ll be interesting to see how it goes.

NJ hospitals, insurers join state effort to curb rising health care costs

With inflation climbing to its highest level since 1982, health care executives and advocates joined Gov. Phil Murphy on Tuesday to make a six-year commitment to curb rising health care costs and hold their rate of increase to less than 3% a year by 2027.

Leaders of two of the state’s major health insurance companies and six hospital systems signed a “compact” declaring their intent to work together with the state “to take actions that make health care more affordable.”

The first step is a program to gather data on the costs of health care — including insurance payments and out-of-pocket costs paid by consumers — for everyone insured by Medicare, Medicaid or private insurance. By analyzing all that information, the actual rate of increase and its causes can be determined and efforts designed to control it.

In New Jersey, there is no central repository of information on what everyone pays for health care — whether they are uninsured or insured by small businesses, unions, large companies, or government programs such as Medicare, Medicaid and the State Health Benefits Program.

The six-year plan announced Tuesday describes 2022 as a transition year, in which data is collected and analyzed. Benchmarks, or shared goals, are then identified for subsequent years, with the rate of health care cost increases not to exceed 3.5% in 2023, 3.2% in 2024, 3.0% in 2025 and 2.8% in 2026.

 

[Mycroft]

New Jersey becomes the latest state to try and adopt the Massachusetts model. Or rather the Massachusetts model lite, as this is an executive branch initiative with no legislation backing it, no teeth at all (relevant at a time, a decade in, when key stakeholders in Massachusetts are looking to add more teeth to its approach), and seemingly none of the tools that a place like Mass has to try and make this work.

But the bones of the approach are similar: collect and make public the data to pull back the curtain on where health care dollars are going, set a statewide target for health care spending growth, and through some mix of cajoling and public shaming try and get health care stakeholders to find ways to meet it.

Even with the major players (publicly) onboard, this will be an uphill battle. But it’ll be interesting to see how it goes.

NJ hospitals, insurers join state effort to curb rising health care costs

Price controls...outside of the natural forces of supply and demand...always end up being bad things.

 

[Greenbeard]

Price controls...outside of the natural forces of supply and demand...always end up being bad things.

Asking health care stakeholders to voluntarily commit to statewide cost containment goals is a far cry from price controls.

 

[Mycroft]

Asking health care stakeholders to voluntarily commit to statewide cost containment goals is a far cry from price controls.

Wrong. That is exactly price controls.

Establishing cost containment goals that are not in response to supply and demand always has a detrimental affect on supply and demand.

From a supply and demand perspective, what happens when prices are artificially reduced?

 

[Greenbeard]

Wrong. That is exactly price controls.

Establishing cost containment goals that are not in response to supply and demand always has a detrimental affect on supply and demand.

From a supply and demand perspective, what happens when prices are artificially reduced?

And when prices are artificially inflated? Health care prices are established via negotiations between large institutional actors and have a lot more to do with relative market clout than econ 101 notions of supply and demand.

Massachusetts launched its model a decade ago and experienced some of the lowest cost growth in the nation after, while continuing to offer among the best care in the country. The reality is that some check is needed on rising health care costs or they’ll soar as they did in the pre-ACA years.

 

[ttwtt78640]

New Jersey becomes the latest state to try and adopt the Massachusetts model. Or rather the Massachusetts model lite, as this is an executive branch initiative with no legislation backing it, no teeth at all (relevant at a time, a decade in, when key stakeholders in Massachusetts are looking to add more teeth to its approach), and seemingly none of the tools that a place like Mass has to try and make this work.

But the bones of the approach are similar: collect and make public the data to pull back the curtain on where health care dollars are going, set a statewide target for health care spending growth, and through some mix of cajoling and public shaming try and get health care stakeholders to find ways to meet it.

Even with the major players (publicly) onboard, this will be an uphill battle. But it’ll be interesting to see how it goes.

NJ hospitals, insurers join state effort to curb rising health care costs

It seems that would create an incentive to raise prices in 2022 since it has been declared as the benchmark year.

 

[Mycroft]

And when prices are artificially inflated? Health care prices are established via negotiations between large institutional actors and have a lot more to do with relative market clout than econ 101 notions of supply and demand.

Artificially inflated prices is also price controls.

I do not agree with insurance companies or health care providers engaging in price controls. However, what you are talking about is not price control...it is negotiations between buyers and sellers.

Massachusetts launched its model a decade ago and experienced some of the lowest cost growth in the nation after, while continuing to offer among the best care in the country. The reality is that some check is needed on rising health care costs or they’ll soar as they did in the pre-ACA years.

Again...price control is not the answer.

 

[Greenbeard]

It seems that would create an incentive to raise prices in 2022 since it has been declared as the benchmark year.

Health price increases tend to be incorporated into multi year contracts negotiated well in advance since both sides need predictability.

 

[Greenbeard]

Artificially inflated prices is also price controls.

I do not agree with insurance companies or health care providers engaging in price controls. However, what you are talking about is not price control...it is negotiations between buyers and sellers.


Again...price control is not the answer.

Negotiations between buyers and sellers is exactly what we’re taking about. Those buyers and sellers are making voluntary commitments around putting guardrails around the terms of those negotiations.

 

[ttwtt78640]

Health price increases tend to be incorporated into multi year contracts negotiated well in advance since both sides need predictability.

The deal seems OK, but why not peg the annual percentage(s) of increase to state K-12 education costs or some other metric under control of the NJ government? That way the deal is that medical care providers will maintain the same pace of increasing their costs as the NJ government does.

 

[Greenbeard]

The deal seems OK, but why not peg the annual percentage(s) of increase to state K-12 education costs or some other metric under control of the NJ government? That way the deal is that medical care providers will maintain the same pace of increasing their costs as the NJ government does.

I’m not sure how NJ arrived at its growth targets. In Mass the target has been linked to the growth rate of potential gross state product, with some ability for the independent agency that monitors health care costs in the state to adjust it if necessary.

 

[ttwtt78640]

I’m not sure how NJ arrived at its growth targets. In Mass the target has been linked to the growth rate of potential gross state product, with some ability for the independent agency that monitors health care costs in the state to adjust it if necessary.

I just think that holding private industry to such ‘voluntary’ agreements, while public entities are exempt is moronic.

 

[Greenbeard]

I just think that holding private industry to such ‘voluntary’ agreements, while public entities are exempt is moronic.

Public entities aren't exempt. As in Mass and the handful of other states that have taken this approach, the health cost benchmark is an all-in spending target that includes spending on health care by everyone in the state, including the state (via Medicaid).

• The target benchmark program will assess health care cost growth for all New Jersey residents with commercial (insured and self-insured), Medicaid, and Medicare coverage. Health care cost growth is measured using total health care expenditures, which includes claims spending; non-claims-based spending; consumer cost sharing; and insurer administrative costs.
  
• The benchmark program will work toward publicly reporting target benchmark performance at the 1) state, 2) insurance market (e.g., commercial, Medicaid, and Medicare), 3) insurer, and 4) large provider entity* levels. The State will continue to engage stakeholders in the development of data collection and reporting specifications.

 

[ALiberalModerate]

And when prices are artificially inflated? Health care prices are established via negotiations between large institutional actors and have a lot more to do with relative market clout than econ 101 notions of supply and demand.

Massachusetts launched its model a decade ago and experienced some of the lowest cost growth in the nation after, while continuing to offer among the best care in the country. The reality is that some check is needed on rising health care costs or they’ll soar as they did in the pre-ACA years.

I think it is also worth pointing out that around half of our country's healthcare markets are monopolies where one health system controls the entire local market.

 

[Greenbeard]

I think it is also worth pointing out that around half of our country's healthcare markets are monopolies where one health system controls the entire local market.

The concentration of hospital markets is definitely a big part of the story and there's no way to understand hospital prices without considering the relative of hospitals and payers in a market. It's certainly possible for the state providing leadership around a statewide spending growth target to influence what happens at the negotiating table between those hospital systems and insurers--it worked in Massachusetts for several years. But if it's to work I think there has to be that implicit understanding that this is to head off a more direct regulatory intervention in the terms of those negotiations. If private actors can't get their act together then state policymakers will look for other levers.

On a different note, another challenge to reining in health costs jumps off the page from this New Jersey’s Health Care Industry Cluster report put out by the state's Department of Labor and Workforce Development. NJ isn't unusual here but the stats are eye-catching nonetheless:

Health care is the only industry that has added jobs in the state every year from 1990 through 2019 while increasing its share of jobholding from 7.5 percent in 1990 to 12 percent in 2019.

From 2000 to 2020, New Jersey has added 127,600 new health care jobs while the rest of the private sector gained approximately 13,400

From 1990 through 2020, the health care sector has added 210,000 new jobs, accounting for 80 percent of all private nonfarm job growth during that time

If we want health care to stop consuming ever more of the economy, we need to find other things for people to do. And figuring that part out is going to take more than just the health care industry titans that signed off on this compact.