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Hospitals, Health Insurers Biggest Sources of Rising Health Costs (Corrected)

By Sara Hansard | September 27, 2017 6:01PM ET

Reproduced with permission from Daily Report for Executives, 187 DER (September 28, 2017). Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033) <>

(BNA) — Hospitals and health insurance companies are the biggest drivers of health-care cost increases, with some insurance costs on par with drug prices.

Of the $240 billion increase in private health insurance spending between 2009 and 2015, hospitals accounted for 50 percent and health insurance administration and profit accounted for 12 percent (a 30 percent increase over that period), Harold Miller, president and chief executive officer of a Pittsburgh- based health-care policy center, said Sept. 27 at a conference in Washington on health-care affordability.

Reining in cost increases that exceed inflation is the chief challenge for the U.S. health-care system. Health-care costs are the biggest driver of the federal debt and are responsible for keeping wages flat as employers spend more on health coverage and employees spend more out-of-pocket, Miller and others said at the conference, sponsored by the Network for Regional Healthcare Improvement.

Avoidable Spending

The U.S. is spending as much on insurance administration as on drugs, Miller said.

“And, if you think single-payer resolves this, all the other major countries are also seeing growth in terms of health-care expenditures” that they are trying to control, he said. However, the U.S. spends more than most other countries, he added.

“There is avoidable spending across the board,” Miller said. He cited unnecessary surgeries, infections and complications from surgeries, unnecessary cesarean sections and early elective deliveries, and giving patients unnecessary drugs for cancer treatments, as examples.

“There are lots and lots of things that we are doing in health care that cost lots of money and are not good for patients,” Miller said. “Most of those things are happening in hospitals.”

Payment System a Barrier

The health-care payment system is a barrier to finding a solution, because health-care providers aren’t paid for many high-value services, Miller said.

“We won’t pay for a nurse to help somebody understand how to manage their chronic disease, but we will pay for them to be in the hospital,” he said

Moreover, avoidable spending is somebody’s revenue, and health-care providers such as small critical access hospitals may lose money, Miller said.

“We need to do the bottom-up approach,” Miller said. Payers should adequately compensate health- care providers who are on the front line of care and hold them accountable for quality and efficiency, he said.

For example, Miller said, an orthopedic surgeon who receives bundled payments from Horizon Blue Cross Blue Shield of New Jersey for the entire treatment of his patients has been able to cut the average length of hospital stays in half, cut average device costs by a third, reduce readmission rates, and cut spending by 20 percent.

In addition, Miller suggested that coverage reimbursements be based on the lowest cost for quality care, with patients paying the difference if they choose higher-cost care. Purchasers and payers need to be involved, but health plans won’t make that a requirement unless employers, which pay for the bulk of coverage, demand it.

Focus on High Prices

More attention needs to be paid to high prices for medical care rather than just focusing on payment systems, George Isham, a senior adviser with HealthPartners Inc., a Minneapolis-based health plan, said.

“The cost increases are increasingly due to pricing of many services,” including pharmaceuticals, hospitals and physician care, he said.

Health-care cost increases shouldn’t be greater than the increase in the gross domestic product, Isham said. Instead, health-care inflation has been exceeding general inflation by 2 percent to 4 percent a year, he said.

“Individual CEOs, CFOs, boards of directors need to be called out and held accountable” for high medical prices, Isham said. President Donald Trump has criticized drug companies for high prices, he said. “I think there’s an opportunity; there’s a recognition there.”

Large Employers Face Pushback

But even large employers, such as Seattle-based Boeing Co., are finding that big provider systems can afford to walk away from accountable care organization arrangements meant to reduce costs, David Lansky, president and chief executive officer of the Pacific Business Group on Health (PBGH), said. The PBGH is a coalition of 60 large employers and health-care purchasers.

Many PBGH members are focused on federal action, Lansky said.

“The drivers of behavior in the system as a whole come out of federal payment and regulatory policy. And no matter what an employer does, no matter how concentrated they are in the market, they can’t change the fundamentals of pricing and of the power relationship.”

Employers concentrate on running their businesses and offering benefits to attract top talent, Lansky said.

“Because they’re competing for talent, they will not redirect their employees or change the richness of their benefits,” he said. For employers, keeping employees is “more important than fixing our health care problem.”

To contact the reporter on this story: Sara Hansard in Washington at To contact the editor responsible for this story: Kendra Casey Plank at



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