Dec 09, 2023

Once cushioned from lawmaker scrutiny, hospitals see a shift

The arguments that hospitals’ trade groups have used for years — mainly, that they need more money from the government — are beginning to fall flat, indicating one of Washington's most powerful lobbying juggernauts may be losing some goodwill.

While groups like the American Hospital Association, which represents about 5,000 hospitals and which spent $27 million on lobbying in 2022, remain incredibly powerful, inflation, rising health care costs and headlines about questionable business practices have put an unwelcome spotlight on the industry, especially as the Medicare trust fund nears its insolvency date.

"The environment and the attitude about hospitals is probably the worst I’ve ever seen it, period, and I’ve been around a long time," said Paul Lee, who has worked on hospital issues for 34 years and is senior partner and founder of Strategic Health Care, a consulting firm.

The shift follows the COVID-19 pandemic, during which Congress poured $178 billion into helping hospitals offset financial losses and care for an influx of patients.

But questions surfaced about whether the wealthiest of health systems really needed that money. And in recent months, advocates have criticized practices they consider abusive, like sending patients to debt collectors.

Meanwhile, lawmakers have questioned the role of hospital spending and consolidation in rising health care costs, especially in Medicare, which will not be able to fully pay claims beginning in 2031.

Lee blames an effort from groups funded by wealthy donors, including Arnold Ventures, West Health and Patient Rights Advocate, which have funded studies and analyses of hospital practices and finances.

"Hospitals were not prepared for this level of advocacy," he said.

Whether the scrutiny and frustration will amount to significant action in this Congress remains to be seen, but it shows a shift in lawmakers’ willingness to hold hospitals largely harmless from policy changes intended to rein in spending and protect patients.

It follows a cascade of scrutiny that lawmakers have put on other aspects of the health care industry in recent years, including drug manufacturers, insurers and pharmacy benefit managers.

"I definitely noticed the shift toward the end of last year of an increasing interest in looking at hospital pricing," said Spencer Perlman, managing partner and director of health care research at Veda Partners.

"Once that shift happens, it's hard to put the genie back in the bottle — the issue is here to stay," he said. "The question is how long can AHA stave it off? And I think they can for a long period of time."

Still, he added, the risk increases as the Medicare insolvency date draws nearer.

Lawmakers are already setting the groundwork for that debate, with the House Energy and Commerce Committee last month approving several bills reducing drug payments to hospital outpatient departments, requiring more transparency in the 340B drug discount program and codifying transparency rules requiring that hospitals post prices online.

Committee Chair Cathy McMorris Rodgers, R-Wash., has vowed to go further, tying reimbursements for certain services provided by hospital outpatient departments to Medicare rates for independent physician practices, a proposal known as "site-neutral payments" that would save the program billions of dollars over 10 years. Typically, hospitals are paid more than independent practices to deliver outpatient services.

It's not clear how far that will go, as some members, including Democrats, have raised concerns about how such changes would impact access to care.

Meanwhile, the House Ways and Means Committee has held several hearings this year scrutinizing hospital finances, including an April hearing on whether nonprofit hospitals are providing enough charity care to justify their tax-exempt status.

The Senate Finance Committee will hold a hearing Thursday on "consolidation and corporate ownership" in health care.

"What seems to be happening from a policymaking standpoint is some high-profile examples are becoming the face of the industry," said Carlos Jackson, a former lobbyist for the AHA and America's Essential Hospitals, which represents safety net hospitals. He now works for Cornerstone.

"There seems to be that perception that most hospitals can afford the haircut," he said. "Well, the hospitals that can't afford that haircut shouldn't get lost in the chorus of voices. Their voices should be out front and the loudest."

The AHA had higher hopes for 2023, aiming to leverage two years of goodwill from the pandemic into permanent changes to "protect the financial stability" of hospitals, claiming financial losses caused by rising labor and supply costs.

Hundreds of representatives of hospitals will be on Capitol Hill this week as part of an AHA advocacy day. In a flyer, the AHA said that "your voice is needed now" because "Congress is considering legislation on a number of issues that would have negative effects on hospitals and their communities."

"We are activating all hospital members to make sure they’re telling their story to their members, particularly on the committees that are holding hearings on these issues," said Stacey Hughes, executive vice president of government relations and public policy for the AHA. "We are aggressive in making sure every member understands what's going on in their backyard, which in many cases is their largest employer."

Hughes dismissed arguments from Rodgers and other lawmakers that paying hospitals more for outpatient services drives consolidation, with hospitals buying up independent physician practices and then charging more money. She said physician practices seek to be sold because they can't survive on their own anymore.

She also said it is more expensive to operate a hospital than a physician practice because of regulatory requirements on hospitals and the need to maintain 24/7 care and standby capacity for emergencies.

Lawmakers have indicated they are increasingly unlikely to accept arguments that hospitals have long relied on: namely, that any payment reductions would hinder access to patient care and that Medicare doesn't pay enough to cover the costs of providing care.

Some of the harshest criticism has come from Republicans.

"Hospital care accounts for nearly one-third of all the health care spending — over $1.3 trillion in 2021," Florida Republican Rep. Vern Buchanan, who chairs the Ways and Means Health Subcommittee, said during a hearing last month.

"This spending will only continue to increase if we don't find ways to create more ‘site-neutral’ and increased competition in areas where one health care system buys up or drives out all the others."

A paper circulating on Capitol Hill attributed the financial losses of large, nonprofit hospital systems to risky investments in the stock market, not significant increases in labor costs as hospitals have claimed.

The AHA panned the paper, arguing that some hospitals are forced to rely on investment income for operations because Medicare and Medicaid underpays for care. The association also pointed to increases in supplies, labor and technology costs.

The hospitals noted the Medicare Payment Advisory Commission estimate that Medicare margin for hospitals will be -10 percent in 2023, although MedPAC also estimated that "relatively efficient" hospitals should be able to break even or come close to breaking even.

The Senate Health, Education, Labor and Pensions Committee met last week with one of the paper's authors, Christopher Whaley, for a private roundtable focused on price transparency.

That roundtable comes as the committee questions what it should do about health workforce challenges.

"Where hospitals, I think, across the board, experienced the largest financial hit was actually in their investment portfolios," said Whaley, an associate policy researcher at the Rand Corp., which received funding from Arnold Ventures and Patient Rights Advocate for the study.

Members have found that unacceptable, with Rep. Larry Bucshon, R-Ind., saying at a recent hearing that "the federal government shouldn't be subsidizing losses in the stock market to some of the largest health systems in the country."