As hospitals face potential reductions in drug discounts and rising operational costs, industry leaders and insurers are engaged in a heated debate over healthcare pricing and policy reforms.
Amid ongoing discussions about healthcare costs in the United States, hospitals are preparing for a challenging landscape as potential changes to the 340B Drug Pricing Program loom on the horizon. This initiative, which allows hospitals to purchase drugs at reduced prices in order to support vulnerable populations, could see significant alterations following an executive order signed by former President Donald Trump.
In 2022, Trump directed the Department of Health and Human Services (HHS) to survey hospitals on the prices they pay for drugs. This move comes after the Supreme Court blocked a prior attempt by his administration to cut 340B discount rates by 30 percent due to procedural shortcomings. John F. Williams, head of the federal advocacy practice at the law and lobbying firm Hall Render, which represents hospitals, remarked, “This time around, in Trump 2.0, they are dotting their i’s and crossing their t’s.” He emphasized that the 340B program is encountering its “biggest threats” to date.
Emily Hilliard, a senior press secretary at HHS, reaffirmed the agency’s commitment to the 340B program, stating that they would continue to administer it in accordance with statutory requirements and authority. However, hospitals are bracing for increased drug costs as they navigate the complexities of providing care while adhering to stricter regulatory requirements.
Insurer Criticism and Rising Costs
The rising costs faced by hospitals are compounded by criticism from insurers regarding hospital consolidation. Insurers contend that acquisitions of physician practices by hospitals have led to increased prices for care, pointing out that services previously billed at lower physician-office rates have surged. In response, hospital representatives argue that the higher costs reflect the inherent complexities of maintaining continuous operations, meeting regulatory demands, and treating patients with more severe health issues.
Charlene MacDonald, CEO of the Federation of American Hospitals, which represents for-profit hospitals, stated, “Tax-paying hospitals invest in their communities, provide more charity care than the national average, while facing chronic underpayments from Medicare and Medicaid, rising drug costs, and increasing administrative burdens created by insurers.” This assertion highlights the multifaceted challenges that hospitals are grappling with as they strive to balance their financial viability with community responsibilities.
Government Reports and Policy Implications
In a report released during the final days of the Biden administration, a cross-agency analysis found that hospital mergers significantly contribute to high healthcare prices. The report cited studies indicating that when hospitals acquire physician practices, the average price of services increases by approximately 14 percent. Additionally, it warned against the consolidation of insurers, noting that increased market concentration tends to raise premiums while lowering payments to healthcare providers.
Mike Tuffin, the CEO of the insurance group AHIP, attributed high healthcare costs to hospitals, advocating for “commonsense policy reforms.” AHIP has long championed price transparency and site neutrality policies, which would require hospitals to be reimbursed at similar rates as clinics. This insurer coalition, known as Better Solutions for Healthcare, which includes major players like Blue Cross Blue Shield, has launched campaigns targeting hospital pricing practices.
Recently, the group initiated an ad campaign aimed at raising public awareness about hospital pricing and launched Hospital Watch, a platform focused on scrutinizing hospital monopolies. The organization also published op-eds in various media outlets, including the Washington Examiner, highlighting concerns that hospital consolidation drives up healthcare costs.
Legislative Developments and Lobbying Efforts
Congress appears to be receptive to potential cuts in hospital reimbursement rates, as evidenced by new hospital billing measures enacted in February 2023 alongside legislation addressing pharmacy benefit managers (PBMs). Additionally, in November 2022, the Centers for Medicare and Medicaid Services (CMS) took initial steps toward implementing site neutrality by reducing reimbursement rates for drug administration in hospital outpatient departments.
In light of these developments, Karl Rebay, a health care consulting leader at Baker Tilly, expressed that hospitals should prepare for forthcoming policy changes, stating, “There’s no being surprised anymore…We think [site neutrality] is coming.” This sentiment reflects the growing urgency among healthcare providers to adapt to an evolving regulatory environment.
In response to the shifting landscape, hospitals are increasingly turning to K Street, Washington’s lobbying corridor, to advocate for their interests. According to an analysis by Baron Public Affairs, sixteen hospital and health systems registered to lobby in the previous month, a fourfold increase from the prior month. Among those registering were significant entities like Cleveland Health and ECU Health, a North Carolina hospital system.
Michael Waldrum, CEO of ECU Health, urged lawmakers to consider exemptions for rural hospitals during the implementation of site-neutral policies in a recent testimony to the Ways and Means Committee. Brent Merchant, co-founder of Merchant, McIntyre and Associates, a lobbying firm representing several hospitals, noted, “What you’re seeing is a recognition by local providers, by rural providers, by smaller hospitals that…if we’re seeing all this, we better make sure our voice is heard, too.”
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