Hearing Looks at High Cost of Medicine

“This is a time of great hope for many of us in health policy,” said Sen. Ed Hernandez (D-West Covina) at last week’s Senate Committee on Health hearing, “Making Health Care Affordable: Exploring California’s Efforts.”

“To date, more than 2.3 million Californians have been added to Medi-Cal or the exchange,” Hernandez said. “These successes should be celebrated, but they do come at a great cost.”

That cost is borne by taxpayers, employers and individuals, and that cost is too high, Hernandez said. “The next debate in the state and in the country has to be: Why are medical bills so high?”

The numbers are scary, he said: 20% of the gross domestic product is spent on health care in the U.S., about twice as much as what other developed countries spend, he said, with similar outcomes.

“In my opinion, this is not sustainable,” Hernandez said.

Insurance premium trends “have moderated somewhat in recent years,” according to Maribeth Shannon, director of the Market and Policy Monitor program at the California HealthCare Foundation, which publishes California Healthline. But she said that likely is from the effects of the recession, as people lost coverage. As the economy recovers, she said, premiums probably will rise as well.

One big cost factor to watch, she said, is hospital care.

“Hospital costs have been and continue to be the single biggest component of health care costs,” Shannon said. “Hospital costs account for about 31% of every health care dollar spent in this state.”

A contributing factor to those high costs, she said, can be seen in the difference in hospital payments across the state. The net revenue per patient day is about $4,292 in Los Angeles County, but it’s almost double that — $7,780 per patient day — in San Francisco County.

“There’s a dramatic difference in the price of care,” Shannon said. “It really does raise some questions about what’s driving these differences in pricing.”

Several cost containment efforts in California were mentioned at the hearing.

California has a growing number of accountable care organizations, for example, and a number of value-based purchasing projects and bundled payment pilots.

“There is not a magic bullet to curb costs,” said Pat Powers, innovation director of the Let’s Get Healthy California program.

Powers said the Let’s Get Healthy task force has developed a long-term plan to raise quality and lower costs. There are many facets to the plan, but Powers also had one specific item she thinks is vital to lower costs.

“We would like to see more performance-based payments,” Powers said, “especially at the delivery system level.”

“What you’ve seen today is a wealth of innovation that’s taking place in the state of California,” said Gerald Kominski, director of the UCLA Center for Health Policy Research. “I think it’s an indication that organizations have been working on these issues for a number of years, making substantial progress.”

Kominski said there was one overriding message of need from the hearing last week.

“Without appropriate data on both cost and quality, it’s impossible to monitor and understand the value of health care services,” Kominski said. “We know there’s been a lot of release of quality data in the state, but what’s missing are the cost pieces, the cost components.”