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COMMENTARY | AB 3087: Serious Unintended Consequences

Despite the best of intentions—addressing the cost of healthcare as part of the effort to make it more accessible—proposed legislation in California will inadvertently have the opposite effect by reducing the availability of care and the supply of healthcare professionals.

Certainly, there is widespread agreement throughout the state that the cost of healthcare needs to be addressed. There is similar consensus that solutions should safeguard the quality and availability of services locally, and assure that the healthcare system statewide meets the diverse needs of California today and in the future.

At first glance, the language in Assembly Bill 3087 appears to provide a clear, simple way to solve the cost problem: Regulate the cost of healthcare by regulating healthcare prices. The bill promises to lower commercial insurance prices by creating a state commission to determine commercial payments for doctors, hospitals and other healthcare providers based on Medicare payment levels.

A close examination of AB 3087 reveals significant flaws in this approach. Most significantly, the bill does not recognize the multiple drivers of hospital and physician costs and commercial prices. The unintended consequences would be reduced access – especially for the poor – without effectively reducing real costs.

One of the biggest challenges in commercial insurance prices stems from government insurance programs paying only a fraction of the actual cost to care for the poor and those on Medicare.

Challenges

This problem is invisible to most consumers but has very real consequences.

Last year in California, the difference between what Medi-Cal paid hospitals and what it cost to care for those patients was $9 billion. The difference for Medicare patients was an additional $8 billion.

Hospitals and physicians that serve significant numbers of government-funded patients are disproportionately affected by these underpayments.

As a result, hospitals and physicians are dependent on commercial insurance payments to compensate for the unpaid costs of caring for Medi-Cal and Medicare patients. This dynamic is one of the biggest drivers of hospital prices and commercial insurance rates.

AB 3087 would be a top-down imposition of payment levels from government offices in Sacramento that are far removed from the actual delivery of healthcare to patients in need.  

This would result in the bill’s first unintended consequence: A reduction of hospital services available in many communities, and Medicare and Medi-Cal patients finding it even more difficult to access physicians.

The bill also would undercut the supply of physicians and nurses needed to care for Californians in the years ahead.

A recent UC San Francisco study conservatively estimated that by 2025 California will have 4,700 fewer primary-care physicians than needed to care for our growing population. And the shortage of nurses is already acute. By 2030 California is projected to have 44,500 fewer nurses than needed at a time when the aging of the population is creating even more demand.

The dramatically reduced revenue caused by the bill would significantly impact California’s teaching hospitals, reducing their capacity for educating new physicians, nurses, pharmacists and other healthcare professionals.

Thus, the second unintended consequence: At a time when the state needs more physicians and other healthcare professionals, this bill would be a huge step backward in meeting California’s future workforce needs.

Dedicated hospital employees across California are engaged in innovative efforts to reduce costs. Working with physicians to better coordinate care, reduce unneeded tests and procedures, and provide more care in non-hospital settings, we are seeing results that also improve the quality of care.

Meaningful Dialogue

There are multiple drivers of healthcare costs and prices, reflecting a system that has evolved over many decades. Rather than pursue the well-intended but flawed approach reflected in AB 3087, the first step should be a meaningful dialogue to develop a complete understanding of the drivers, then move in a timely way to identify the solutions and a transition plan to achieve effective change. Hospitals and physicians in California are prepared to be part of such an effort.

Thomas Priselac is president and chief executive of Cedars-Sinai Health System.

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