In summary

To protect Californians from rising health care costs, the state needs to strengthen price transparency and price competition.

By Glenn Melnick, Special to CalMatters

Glenn Melnick is a professor of health care finance and public policy at the University of Southern California, drgmelnick@yahoo.com.

Even before the onset of COVID-19, the cost of health care was becoming a public health crisis of its own.

Double-digit premium increases and growing out-of-pocket expenses cost the average family $24,104 in 2018 – out of a median household income of $70,489 – and more than half of Californians said they had skipped or postponed health care in the past year because of rising costs.

As we enter the fifth month of the coronavirus-induced emergency, there are warning signs this cost crisis may be about to return.

Recent research conducted by my colleague Susan Maerki and me finds California’s hospitals have been under tremendous financial pressure as a result of COVID-19: Hospital revenue was down $3.2 billion each month for the last four months, driven by striking declines in patient volume, which fell as far as 60% in the shelter-in-place weeks of March and April. 

And, while federal aid to California hospitals – $3.5 billion to date under the CARES Act – provides some relief, California hospitals are likely to end the year with substantial financial losses. 

At the same, with 5 million Californians filing for unemployment since March, many families may lose their employer-based coverage – forcing health care providers, hospitals and doctors to face a future of fewer commercially insured patients on top of accumulated financial losses. 

Hospitals have turned to the state Legislature and Congress for support during this emergency – and rightly so. But to keep the health system working – while protecting Californians from being overwhelmed by rising health care costs – we must also use this opportunity to strengthen price transparency and price competition to redesign and rebuild a more efficient health care system, one that can operate at much lower cost than before COVID-19.

One immediate step worth taking is accelerating implementation of the Health Care Payments Database in California’s Office of Statewide Health Planning and Development. Introduced as part of the 2018 budget, the database will track prices and utilization across our state’s $350 billion health care system. 

Fully implementing a database like this is the best way for policymakers and the public to understand how health care prices are changing in response to the enormous stress of COVID-19. Transparency of this sort is long overdue and will lead to a more efficient, price competitive system which will translate into slower health insurance premium growth. 

Another key strategy is continuing to develop the Office of Health Care Affordability, which Gov. Gavin Newsom proposed creating in January but delayed due to budget cuts. The office would be tasked with setting cost growth targets for various sectors of California’s health care industry – giving the state a much-needed structure to return health care cost savings to millions of California families. It is crucial that the launch of this office not be delayed past next year. 

State leaders must also continue to stand by their past efforts to rein in health care costs. One positive sign on this front came this summer, when a state judge, with the support of Attorney General Xavier Becerra, refused a request from Sacramento-based Sutter Health to delay implementation of a $575 million antitrust settlement from December – the result of a years-long lawsuit over Sutter’s alleged overcharging for services. 

As part of that deal, Sutter agreed to have its business practices monitored for 10 years, limit charges for out-of-network services, and increase transparency by providing patients, employers and insurers with access to its pricing and costs. 

COVID-19 has had a catastrophic impact on our economy and on hospitals’ bottom lines, but we cannot allow one catastrophe to precipitate another. For the sake of California’s workers and families, we must stand by our successful efforts to cap costs – and quickly implement policies for tracking and controlling cost increases across our health care system. Only then can we declare victory over the severe public health challenges wrought by both the pandemic and affordability crisis. 

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