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Why Are Health Costs Soaring in Washington State?

Health insurance premiums in the state have risen 49 percent in the last decade, which may be a result of industry business mergers. More than 80 percent of residents are worried about affording health care in the future.

Over the past decade, health insurance premiums for Washington workers covered through their employers rose 49 percent while the costs of individual plans more than doubled.

Those were among the key findings in a preliminary report prepared by the state Insurance Commissioner's Office delivered to the Legislature this month. The report details how mergers and acquisitions in the health care industry are likely contributing to accelerated health care costs, with more of the same expected in the years ahead unless significant changes are made in the state's health care systems.

Even before the economic disruptions of the COVID-19 pandemic, health care costs grew at nearly double the rate of inflation, the Office of the Insurance Commissioner found in its analysis of the commercial health insurance market through which over 42 percent of Washingtonians are insured.

While Washington has one of the highest coverage rates in the nation, with just 6 percent of residents uninsured, "rising health care costs have created a growing and persistent health care affordability challenge," Insurance Commissioner Mike Kreidler said in a statement.

Responding to the report's findings on rising prices, industry leaders point to Washington's aging population, the surging costs of medical advancements and an incredibly tight labor market. They also blame the government's underfunding of public health insurance programs, which they say fail to pay their fair share of medical costs and force private insurers to subsidize care.

"It's not like there's a magic pot of money someplace that is paying for those costs and that gap in government funding," said Beth Zborowski, spokesperson for the Washington State Hospitals Association.

Health care spending now accounts for more than a fifth of the state budget, even as average premiums for workers and businesses saw double-digit increases.

"The cost of health insurance has been the No. 1 small business problem for decades," said Don Conant, a former business owner who teaches business administration and economics at St. Martin University in Lacey. "Employers are stuck in the middle between workers who need medical care and an out-of-control health care system."

A survey of 1,300 Washingtonians in November 2022 found nearly two-thirds had either rationed medication, delayed or skipped care, or depleted savings to afford medical attention. More than 80 percent said they worried about affording health care in the future.

The same year, the Legislature tasked Kreidler and Attorney General Bob Ferguson with reviewing key factors driving up health care costs in the state and compiling policy options to improve affordability. The final report is due in August.

Though employers, including the Washington state government, have tried to reduce costs by promoting generic drugs, high-deductible plans and lower-cost providers, consolidations in the health care system have "limited" the success of these efforts, Kreidler and Ferguson noted in a joint statement.

The report links growing costs to a rapid rise of health care mergers and acquisitions, as a handful of insurance companies, hospitals and providers take over large swathes of the health care market.

"Washington State's health care system has changed significantly because of horizontal consolidation and vertical integration across health care providers, facilities, and insurers," Kriedler wrote.

As of July 2022, about 40 percent of Washington hospitals were affiliated with five hospital systems, namely Providence-Swedish Health Alliance, MultiCare, Virginia Mason Franciscan Health, UW Medicine and PeaceHealth, according to the Insurance Commissioner's report. Another 15 percent belong to smaller multi-hospital systems. In 1986, about 10 percent of hospitals in the state were in such systems, according to data from the state Office of Financial Management.

From 1986 to 2017, the number of available hospital beds per 100,000 people nearly halved, while the percentage of beds in hospital systems increased from 19 percent to 73 percent.

"A decreasing resource became increasingly concentrated in systems," the Office of Financial Management observed, adding that the shift has created "more influence for systems in health care policy and administration."

Consolidation has also led to a decline in the number of physicians working independently, according to the Insurance Commissioner's report. Eight systems now employ 65 percent of physicians and physician assistants in the state. Most of these systems also now own and operate hospital-affiliated clinics, free-standing clinics and other facilities.

"Generally, consolidations do not improve quality of care," Kriedler wrote. Rather they "drive up prices and impact access to care for patients and working conditions for providers."

At the same time, health insurance companies are increasingly taking over physician practices, pharmacies, labs, clinics and other health care delivery options.

More recently, private equity firms too have entered the fray, acquiring health care-related companies. Most of them took place in Seattle and Bellevue.

While the report does not show whether such investments have hurt health care affordability in Washington, it highlights a 2023 review of 55 studies that found private-equity ownership was "most consistently associated with increased cost to patients or payers and with mixed to harmful impacts on quality."

"There is no question that mergers and consolidations can affect the delivery of high-quality care," said Leah Rutman, ACLU Washington's health policy program director. "That's why we need new tools to thoroughly review these deals and determine whether they are good for the public, not just good for big health systems' profit margins."

The Washington State Hospital Association, the trade group representing hospitals, denied a causal relationship between the price of health care and hospital consolidations.

An aging population that's sicker, technological advancements in care and a tight, unionized labor market has meant care now costs more to deliver care, said Zborowski, senior vice president of membership engagement and communications at WSHA.

"That is driving some of these costs, in addition to really rapid inflation for all the supplies and inputs that go into it," Zborowski said.

The challenge is that the report focuses solely on cost and affordability and does not acknowledge access or quality issues, which are also critically important, she continued.

"A lot of the consolidations that we've seen in Washington state have been about preserving access to health services in the communities," she said. "I don't think they were ever touted as ... a cost savings to the system."

WSHA argued chronic underfunding of Medicaid and Medicare has led to a cost shift that private insurers are unwilling to take on, leaving increased costs to patients.

"Even when it comes to looking at how hospitals are reimbursed for their services, there's been a chronic underfunding of Medicaid and Medicare by the government," Zborowski said. "They do not pay the full cost of care."

To address rising costs, the report's authors described policies other states have adopted. Establishing health care spending targets linked to the larger economy, regulating drug prices and expanding oversight of rate increases emerged as top responses, as has taking on a portion of high-cost claims to lower health insurance premiums for individuals.

"It's not surprising that other states are more successful at holding the line on health care prices," said Dr. Bob Crittenden, a family physician on a state Health Care Cost Transparency Board advisory committee.

"They have better enforcement tools," he said, advocating for a bill proposed last session to establish a cost transparency board that would help hold insurance companies accountable for exceeding cost growth benchmarks.

WSHA contends the proposed policy changes won't reduce out-of-pocket costs as much as the state would like.

"We would like to see the state look at other policy solutions with more proven ties to impacting the cost of care," Zborowski said. She suggested incentive payments for quality care and better funding for primary care, among other changes, would do more to address rising costs.

Rutman of the ACLU pushed for the Keep Our Care Act, which would prohibit hospitals from merging if the consolidation diminishes patients' access to services, including reproductive, end-of-life and gender-affirming care. It seeks to enhance public oversight of such mergers to preserve affordability and access to these services. State Sen. Emily Randall, the Bremerton Democrat sponsoring the bill, will reintroduce it in the upcoming legislative session.

WSHA argued the bill focuses too much on hospital systems consolidating and not enough on other players like health insurance companies and private equity firms.

(c)2023 The Seattle Times. Distributed by Tribune Content Agency, LLC.
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