On Friday, in a forum sponsored by state Rep. Kerry Wood, six national and local experts gave legislators specific policy tools to help with health care market consolidation and rising drug prices that are driving up health insurance premiums. Legislators also got specific tools used by Rhode Island to avoid private equity abuses experienced in other states. Private equity takeovers have raised prices, lowered health outcomes, and closed vital hospitals saddled with debt.
Health insurance is expensive in Connecticut. Last year, premiums for single coverage here were the eighth highest in the nation and seventh highest for families. Legislators heard this loud and clear from voters in the last election campaign. Most options for lowering premiums stalled this year in the legislature. None of them addressed the underlying drivers of skyrocketing premiums. Consolidation in Connecticut’s healthcare markets and profiteering by drug companies are driving costs up, leaving legislators looking for solutions.
At the forum, Kate Gudiksen, Ph.D., of The Source on Healthcare Price and Competition at the University of California Hastings School of Law, noted that if the price of milk had risen as much as healthcare since World War II, a gallon would cost $160 now.
A lack of regulation has allowed mergers creating huge health systems that then force people to pay prices 20% to 47% higher than what was charged previously for the same services. Dr. Gudiksen offered policymakers options to make Connecticut’s healthcare markets more competitive, including limiting further mergers. However, as our state’s market is already very consolidated, she offered options being used in other states to support competition, including restricting or banning anti-competitive contract clauses. These clauses allow large health systems to use their market power to force insurers to include them and pay them more, regardless of price or quality.
Laura Alexander, J.D., of the American Antitrust Institute, described the serious dangers of rising private equity (PE) hospital ownership. PE firms’ acquisitions are largely hidden and unregulated. PE firms typically purchase hospitals, and other entities, expecting to sell them again in 10 years. Despite the name, PE purchases are mainly funded with bank loans, leveraging the hospital as an asset. After a purchase, PE partners generally don’t use the funds they borrow to invest in the hospitals, but often pull out millions in profits/dividends and lease back the facility to a new management company that then extracts fees.
Profits are generated by cutting costs, generating new revenue, consolidating markets, and collecting “management” fees. PE purchases typically result in higher prices, less competition, lower health outcomes, and unstable hospitals that close. Policy solutions include tighter regulation of healthcare mergers, closing regulatory loopholes, banning sale-leasebacks of facilities, banning anti-tiering and anti-steering contract clauses (as recommended by Dr. Gudiksen), and banning or restricting private equity acquisitions of healthcare facilities completely.
Miriam Weizenbaum, J.D., Civil Division Chief in the Rhode Island Attorney General’s Office, described their work as a national leader in protecting hospitals and communities from PE abuses. Unlike other states, including Connecticut, when PE firm Prospect Medical Holdings, wanted to change ownership and allow one partner to take millions of dollars in assets from two RI hospitals, the Rhode Island Attorney General’s office placed important conditions on the approval. After the initial purchase in 2017, Prospect significantly undermined the hospitals’ finances by borrowing $1.12 billion and paying $457 million in dividends to the PE partners. By 2020, Prospect was over $1 billion in debt.
Rhode Island has strong protections for hospitals and communities in state law. The Attorney General’s conditions on the change required that Prospect create an $80 million escrow account that could be used for operating expenses, planned capital improvements, and to pay back federal relief funds. For the next five years, Prospect must keep the hospitals open and provide essential services and charity care. If Prospect declares bankruptcy, the escrow account does not go to creditors, but back to the hospitals. Monitors were hired by the Attorney General’s office, paid for by Prospect, to enforce the conditions.
Prospect also owns Waterbury, Rockville, and Manchester Memorial hospitals in Connecticut.
Rachel Davis, J.D., a Connecticut Assistant Attorney General, described their current antitrust enforcement authority and activities.
Legislators also heard from experts on rising prescription drug prices and the impact on health insurance premiums. Between 2014 and 2018, Connecticut insurance plan spending on prescription drugs rose twice as fast as the growth in our state’s economy. Drew Gattine, J.D., from the National Academy for State Health Policy, and Sarah Emond, MPP, of the Institute for Clinical and Economic Review, described possible solutions for policymakers.
Options included insurance standards for fair patient access to prescription drugs, international reference rates, taxing unsupported price increases, anti-price gouging legislation, and evidence-based benchmark prices used by most health insurance plans, the Veterans’ Administration, and nearly half of state Medicaid programs.
Connecticut policymakers now have a wealth of options to control the drivers of rising health costs. None will be easy; affected industries are spending heavily on lobbyists. But the alternative, continuing extreme premium increases, isn’t sustainable for Connecticut families, employers, or government budgets.
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