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A Reform Agenda for Biden’s Health Cabinet

The administration must get to work lowering prescription drug costs, tackling expensive prices charged by providers, and improving care for people with complex health needs.

Xavier Becerra answers questions during his confirmation hearing before the Senate Finance Committee on Capitol Hill earlier in 2021. The March 18 Senate confirmation of Becerra as HHS Secretary fills a critical role in the Biden Administration's health leadership. (Getty Images/Greg Nash)

With President Biden’s health cabinet taking shape, the administration is poised to sharpen its attention to a suite of pressing problems – from drug and hospital prices to fragmented care systems – that continue to prevent Americans from accessing care they need.

As the pandemic lingers and the economy struggles to recover, an increasingly expensive health care system is creating financial hardships for families and employers, as well as local, state and national governments.

The ripple effects are far-reaching.

Drug prices – which were already perilously expensive – crept even higher, with drug makers hiking the price tags on more than 500 medicines this year in the middle of the global health crisis. The prices charged by hospitals, clinics and providers are also increasing.

Families are struggling to afford exorbitant hospital bills and rationing lifesaving insulin and other prescription drugs. In a recent survey, the nation’s employers pegged health care costs as their No. 1 worry, ranking the concern higher than anxieties about COVID-19’s impact on business.

Governments are facing looming budget deficits that threaten health care access: Without intervention, Medicare will become insolvent in 2024 – an accelerated timeline due to rising costs, hospitalizations from COVID-19, and drops in revenue from income taxes.

The pandemic’s disproportionate toll has been felt acutely by people with the most complex medical and mental health needs. Individuals who are dually eligible for Medicare and Medicaid are experiencing COVID-19 hospitalizations at much higher rates than others.

Against this backdrop, Biden’s health care team is facing unprecedented demand for administrative solutions and Congressional action to advance evidence-based reforms aimed at making health care more affordable, accessible, and equitable.

Here are some specific reforms we’d like to see addressed by the administration:

Make Drug Pricing a Priority

There is bipartisan support among voters for lowering prescription drug prices, and at least two pieces of federal legislation have been proposed that would meaningfully and effectively address rising drug costs.

These include a bill championed by Sen. Chuck Grassley, R-Iowa, and Sen. Ron Wyden, D-Oregon, that would lower costs by redesigning Medicare Part D and implementing an inflation rebate requiring pharmaceutical companies to pay when their drug prices rise faster than inflation. An inflation rebate could generate $82 billion in savings over a decade.

Congress should go further by considering Medicare negotiation in H.R. 3, a bill that passed the house in 2019. The negotiation provision of that bill would save more than $450 billion over the next decade.

If Congress fails to act, the administration should stand ready to pursue administrative changes such as directing agencies to take a closer look at anticompetitive practices or using its demonstration authority to test novel reimbursement for high cost drugs.

Contain Ballooning Hospital Prices

Hospital prices have been steadily rising over the past decade, outpacing inflation and wage growth, to drive hospital spending to reach a total of $1.2 trillion in U.S. spending in 2018.

Growing consolidation within the health care system is a key reason for higher prices. It has resulted in large and powerful health systems that dominate the market and leverage this market power to raise prices.

Hospitals charge privately insured consumers – about half of all Americans – about 2.5 times what they charge Medicare for the same services and treatments – and often even higher than that. This gap has been widening in recent years, according to analysis by the RAND Corporation, leaving Americans on the hook for higher premiums, deductibles and out-of-pocket costs.

To bring costs under control, future market consolidation should be limited and efforts should be taken to mitigate high prices in already consolidated areas. However, these types of efforts have a smaller impact on savings than direct government intervention to regulate prices.

The federal government can increase transparency around hospital prices to provide greater insight into the prices paid for care, and has taken steps to do so with the hospital transparency rule that went into effect in January; strengthen antitrust enforcement to increase oversight of on monopolistic behavior within health care and limit future consolidation; and ban certain anticompetitive behaviors used by large systems to extract expensive prices for care, such as the tactics used by Sutter Health.

In addition, policymakers could directly regulate the excessive prices providers charge across the full market or by targeting certain market segments (e.g., highly consolidated areas). Capping private payer rates at a multiple of Medicare rates could result in significant savings. Recent analyses from the Committee for a Responsible Federal Budget found that capping commercial sector prices at 200 percent of Medicare would lower national health expenditures by $1 trillion.

Integrate Care for Dual-Eligible Beneficiaries

With its outsized impact on at-risk populations, the pandemic has been particularly bad for people who are dually eligible for Medicare and Medicaid. They were more than three times as likely to be hospitalized with the virus as people who are covered by Medicare only.

They manage this reality while navigating two disparate health insurance programs – Medicare and Medicaid – a fragmentation which has led to high health care spending but poor health outcomes.

Significant efforts have been made over the last 10 years to address these gaps, yet much remains to be done. Only one in 10 dual-eligible individuals is enrolled in a coverage option that addresses these gaps and integrates Medicare and Medicaid. Even the available models leave a lot to be desired in their ability to truly integrate the two programs.

The administration should use its existing authority to integrate Medicare and Medicaid to the greatest extent feasible, centering these efforts around one model. Multiple models that permit varying degrees of integration have been permitted to flourish to date—this has created a confusing landscape of options for consumers to pick from and should be simplified.

To ensure that integrated coverage is broadly available, states will likely require additional support. States are the gatekeepers for making integrated care available today—they get to determine both whether and how these coverage options exist in their state. Many of them report lacking the necessary resources and expertise to create these options.

Further, integrated models should also make the types of services that consumers want and need to keep them healthy and in the community. The pandemic has highlighted the challenges of caring for people in institutions like nursing homes. Many dual-eligible individuals utilize these long-term care services and the existing system is oftentimes designed to make it easier to move into one of these facilities than stay within the community despite their own preferences.

The Biden team committed to this goal on the campaign trail, and integrated models can play a central role in making it feasible.

Build Guardrails into Surprise Billing Ban

In December 2020, Congress passed a new law protecting patients from surprise medical bills that result from services provided by certain out-of-network providers. This year, the administration will be responsible for implementing the law that will ultimately determine its impact and how much money it saves for taxpayers, employers, and patients.

Before the law’s passage, consumers could be on the hook for expensive surprise bills much more than what Medicare would have paid for the same service.

This has resulted in higher premiums for everyone. The law prohibits out-of-network providers, including air ambulances, from surprise billing patients who usually have no choice to see an out-of-network provider. It also requires providers and health plans to resolve billing disputes through open negotiations, and independent dispute resolution (also known as arbitration) when negotiations are unsuccessful.

As the law is implemented this year, the administration must build in protections to ensure that the independent dispute resolution process doesn’t have an inflationary impact on the prices paid to providers, which will ultimately result in higher costs to patients, employers, and taxpayers in the form of higher premiums.

Similar state arbitration approaches to resolving surprise medical billing serve as cautionary tales. In New Jersey, for example, a 2018 law requiring arbitration has been favorable to providers, with median decisions about 5.7 times higher than in-network rates for the same services, a trend that is expected to boost health care costs. New York State, which also uses arbitration in surprise billing disputes, had similar results.

To ensure consumers are protected and put downward pressure on health care costs, the administration must enact comprehensive regulations that include guardrails around the independent dispute resolution process to avoid inflating payments from insurers to providers and limit overuse or abuse of the process.

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