NYC Hospital Prices: Remarks from Christin Deacon to New York City Council, October 14th, 2021

Committee on Hospitals, jointly with the Committee on Health:?Hospital Costs -- Impact on Access to Care

“ Our hospital’s mission is to provide caring, high quality, fiscally responsible healthcare services that meet the needs and expectations of the communities we serve.”?This is a real example of a mission statement from one of New York’s most prominent, and expensive hospitals. ?I can attest that it is similar to many other hospital systems’ stated missions in your City, this State, and indeed, the country.?

While I do not question the core mission of providing care and high quality healthcare services to the communities they serve, I do question the proposition that there is any element of fiscal responsibility when it comes to the hospital prices. ?

I acknowledge and understand that there is never a good time to take on hospital prices.?Policymakers are often pressured to protect their local hospitals and avoid much needed discussion about hospital pricing and transparency.?BUT, that task is essential if the nation is ever to get a grip on health care costs.?Fully half of Americans now carry medical debt, up from 46% in 2020.?Rising hospital prices are substantially to blame for this unacceptable state of affairs.?

I previously served as a public servant responsible for administration of the State of New Jersey State Health Benefit Program, where we covered over 800k lives, including state employees, local government and education employees.?This opportunity has given me a unique perspective and direct personal experience in dealing with the rising costs of healthcare.??Ok, so aside from medical debt that is crushing primarily our middle and lower income classes, and disproportionately impacting our communities of color and those most vulnerable among us – why should we care about rising hospital prices as employers and public leaders, and what can we do about it?

First, hospital spending comprises the biggest chunk of healthcare spending, which drives up insurance premiums and out-of-pocket costs to members.?Even if you have a generous plan available to your employees, as many public sector plans are, limited out of pocket costs, low or no copays or deductibles, shielding your employees from the exorbitant costs of hospital care in the near term does not shield them from paying for it in different ways.?Here are the main ways in which all of us, even those with Cadillac plans, are in fact paying:

• Increased health benefits premiums the following year – if you’re fully insured or self-insured, increasing and exorbitant hospital costs, which by the way have ZERO correlation to quality, will be passed on in the form of higher premiums the following year.
• What if I only pay a % of my salary for health benefits contributions, I’m protected, right??Wrong again – if increasing hospital costs lead to a net increase in healthcare expenditures for your employer, invariably there will be less money for compensation (i.e., raises), pension funding, etc.
• Finally, if you are with one of those unicorn organizations that foots the entire bill and doesn’t pass the bill on to you as an employee in any manner whatsoever – I’d like for you to think about the societal opportunity costs that the runaway train of hospital prices inevitably leads to.?If $1 out of every $3 healthcare dollars is spent on hospital costs, that represents roughly 6% of our GDP.?We spend less than 4% on education, less than 1% dealing with and preparing for climate disasters, less than 2.5% on infrastructure and a percentage too small to quantify on food insecurity.?

Are we getting better health outcomes? No. Is hospital care improving our health as a nation or our mortality? No.

There are hospital executives that will take issue with this position, and trust me, I’ve heard the plethora of reasons why “hospital prices continue to rise” and they go a little something like this:

• Public payers underpay – Medicare and Medicaid rates are not enough to sustain our business model.?We know that commercial payers reimburse hospitals about 2.5 times more than does Medicare, yet, according to MedPac, the congressional advisory commission that sets reimbursement rates with multiple stakeholders input (including the providers), Medicare payments covered 8% more than hospitals’ allowed variable costs.?Perhaps 8% is too narrow a margin, but is 250% really necessary?
• BUT CHARITY CARE!!!! – Nope, not buying it – see above statistic on medical debt.?Moreover, it is actually pretty easy to learn about a hospitals’ case mix from their public CMS filings and I have personally challenged this narrative when a hospital CEO in NJ cried Charity Care at a Cost Control Advisory Meeting.?After pointing out that his institution’s charity care as a percentage of case mix, was under 2%, I pointed out that their 32% profit margin could more than adequately absorb these costs without charging the State health plan multiples of CMS for services provided. An analysis by Politico found that since the full Affordable Care Act coverage expansion, revenue in the top seven nonprofit hospitals (as ranked by U.S. News & World Report) increased by 15 percent, while charity care — the most tangible aspect of community benefit — decreased by 35 percent.
• Community Impact – we cannot rubber stamp this category either.?Fountains in glass atrium are not positive community impact, nor should a hospitals acceptance of Medicaid patients.?While there are legitimate ways in which hospitals can and do give back to the communities they serve, the local community that is footing the hospital’s tax break?and paying their bills must?have a forceful say in how this money is spent, rather than leave it solely up to the hospital.

I'm going to give some statistics to back up some of my claims, taken from NY city hospital systems’ own 2019 filings with CMS:

• Net profit margins range from NY City Health and Hospital System at -12% profit margin, and NY Presbyterian topping out at 19% profit margin.
• Net assets range from negative for some systems, most in the hundreds of millions, and Mt. Sinai sitting on almost $2.5B, NYU Langone sitting on over $3B, and NY Presbyterian at over $8B.
• With the exception of three hospitals in NY City, all had less than 1% charity care case mix, while at the same time a majority of these hospitals are charging multiples of the CMS rate.?One in particular averages over 380% for inpatient and outpatient services.

There is no amount of charity care or community impact that could justify such exorbitant costs that are borne by the City’s tax-payers, employers, employees and residents.?There is no obvious “check” to balance out the increasingly one sided market that benefits from higher healthcare and hospital prices.?Horizontal and vertical consolidation amongst hospital systems, the purchasing of physicians offices and the building sprees that these acquisitions have spawned are only leading to more upward pressure on hospital prices if we do not stand up and say “I’m mad as hell and I’m not going to take it anymore.”?

Now that we have spent most of our time on the “why it matters bucket,” now we turn to the “what can we do about it” solutions:

1.????Demand Full transparency – the Federal Government has tried, through Rulemaking, to force hospitals to be more transparent with their prices, but due to meager enforcement and a lack of willingness of hospitals to comply, we are left with little meaningful information.?Demand transparency, through your contracts, with your purchasing clout, in law and regulation – you pay for it, demand to know the prices.

2.????You have the buying power- use it.?Self-funded payers have the market power to demand lower costs.?The train will only keep running away if we stand idly by and watch it.?If a hospital is charging exorbitant fees, remove it from your network.?Save your employees and your bottom line from their predatory practices.

3.????The business community, which pays a third of the nation’s healthcare tab, has never put its considerable political clout behind far-reaching payment reforms?- with this triad rowing in the same direction, we can not only contain cost growth, but we can start shifting healthcare dollars to where they are really needed – first, towards better primary care and mental health services, and ultimately hardworking American’s pockets.?

Thank you for your time and attention on this very important matter.?