There’s a growing consensus that hospital prices are the main driver of rising healthcare costs and insurance premiums in Connecticut. The research lays the blame on consolidation in the market – mergers of hospitals with each other, with physician practices, and with other healthcare providers. This week, Yale New Haven announced they plan to buy three more Connecticut hospitals to add to their current network of four. Last month, St. Francis, part of a network with two other Connecticut hospitals, filed suit against Hartford Hospital, part of a network of seven hospitals, for anti-competitive practices.
At a forum in September, legislators heard overwhelming evidence that these mergers raise prices for care without any improvement in quality. As health systems get larger and become monopolies in their area, they can charge whatever they like. Employers and health plans can’t say no.
Over a week ago, I started a deep dive into what the state knows about how hospitals spend all this money. As they become bigger and charge more, do they devote more resources to patient care, prevention, and community benefits, or do they hire more administrators?
The state gets hundreds of reports from hospitals, available from the Hospital Reporting System portal, and compiles them into a large annual report. But it doesn’t include some critical data. There is no “administration” measure – some administrative categories are specified, but others, including executive compensation, are distributed among other categories. Compensation for the10 highest-paid executives is available for each hospital and health system (Reports 19a and 19b), but you have to download the lists from the portal for each of the 32 hospitals and health systems individually.
The very kind analyst from the Office of Health Strategy – who complies the reports – walked me through all this. Otherwise, I’d still be lost. He confirmed that we don’t know how much hospitals spend on administration. We also don’t get the cost per discharge, a figure that would allow us to compare hospitals’ costs. These data points are critical if we are to assess how efficient hospitals are and identify waste. If we can’t measure it, we’ll keep paying for it.
Administrative spending by other big players in health care is not only reported, it’s also capped. Under the Affordable Care Act, insurers can only spend 15% or 20% of our premiums on administration and profit, depending on the plan type. If they under-estimate medical costs when they set premiums, they must refund the excess money back to consumers and employers. Administrative spending by nursing homes in Connecticut is also capped by the state. Massachusetts, New York, and New Jersey recently went further, requiring that 70% to 90% of nursing home revenues go to resident care.
We do know a lot that is concerning about Connecticut hospital spending. According to the Office of Health Strategy’s latest reports, we know that in 2020, the first year of the pandemic, Connecticut hospitals’ revenues exceeded expenses by 2.6%. Other industries would have been thrilled to have profited at all.
In 2020, the US economy shrank by 3.4%. Because of the strain of COVID, Connecticut hospitals received $1 billion in federal aid, but it wasn’t targeted to those who were struggling. We know that in 2020 Connecticut hospitals spent just 34% of total expenses on nurses, doctors, and other medical professionals, but top hospital executives averaged $2.6 million in earnings.
Over half of Connecticut hospitals’ revenue comes from taxpayers. If we want to make healthcare affordable, we have to limit hospital consolidation and its impact on prices, and we have to set reasonable expectations for how they spend the money we send them.