Health Care Costs and Conflicting Cycles of Responses: Back to the Future, Part 1

“If you don’t know where you are going, you will end up somewhere else.” That’s normally sound advice from the collections of seeming malapropisms and odd turns of phrase by Hall of Fame catcher Yogi Berra. But in the recurring cycles of health policy and politics, we often end up back in the same place when we forget where we have been already. Consider two recent examples of how the rotating cast of health sector “villains” tends to come full circle, while we overlook how political fortunes can change over time.   The leading members of both the hospital and health insurance industry are lined up currently as primary targets in our sequential blame games for higher health care costs and access restrictions. Pharmaceutical benefits managers are finishing up their own turn in the penalty box, courtesy of an effective “the devil made me do it” deflection strategy by pharmaceutical lobbyists.   Health insurers have come under heavy criticism for their reliance on prior authorization, often augmented by artificial intelligence tools, to delay or refuse to pay claims submitted by health care providers and their patients. Hence, several major insurers, including UnitedHealth, last summer committed to reducing their pre-treatment review of claims for services, establishing more common requirements for electronic submissions, and accelerating response time to review requests. Since then, levels of prior authorization delays and denials have dropped noticeably (but not yet enough to forestall continued criticism).   Does this sound vaguely like we have been here before (albeit with less technologically enhanced tools)?  In 1999, UnitedHealth announced  (in response to a  political backlash and lawsuits over earlier managed care practices ) that it was returning decision-making power over patient care to physicians for issues like hospital admissions and other treatment options. In confirming an underlying shift in healthcare coverage from HMOs to broad preferred provider networks, it reflected employers’ response to tight labor markets and risks of expanded legal liability exposure, but it also triggered an upsurge in healthcare spending growth.   Health insurers shifted tactics over time to weather the storm, first advancing “consumer-driven care” and increased cost sharing before eventually returning to more sophisticated targeting of market opportunities, revenue growth through consolidation and transfer pricing, and greater reliance on government-administered coverage programs (Medicare Advantage, Medicaid managed care). More recently, AI tools reduced the costs and increased the yield from a return to prior authorization on autopilot. The parallels between these swings of the pendulum within a little over a quarter century are more similar than their digitally enhanced differences.   Running on a parallel track is a mounting litany of complaints about hospital industry practices that range from anticompetitive pricing practices in consolidated markets and abuses of leveraged market power to exploitation of loopholes in government reimbursement policies (e.g., site of care differentials and 430B drug purchasing subsidies). Aggressive debt collection practices and revenue maximization by officially nonprofit hospital systems add to the list of questionable activities.   But in health care politics, memories are short. They tend to overlook cyclical shifts and rarely get in the way of motivated reasoning to address current targets of blame. If we look back again briefly to health sector dynamics of the late 1990s, we might learn how health insurers once held the upper hand in negotiations with hospitals, yet eventually lost it.  One thoughtful analysis at the time suggested the negotiating leverage shifted  as reductions in hospital capacity, increases in bed occupancy rates, and loosening of selective contracting practices helped produce a role reversal, with insurers growing more dependent on hospitals. More “must-have” hospitals increasingly became contract makers or breakers, instead of takers Political climate change during the late 1990s (tighter state regulation, proposed federal legislation), augmented by employers shifting attention to retaining employees amid tight labor markets and rising corporate profits, dampened demand for aggressive cost-cutting strategies by insurers. A downturn in enrollment in private managed care plans administering Medicare and Medicaid benefits (later reversed by the second half of the next decade) may have further lessened the “market” for narrow networks and other restrictive contracting practices.   Meanwhile, hospitals consolidated both horizontally and vertically into numerically fewer but economically and reputationally more powerful “multihospital systems.” More lucrative revenue enhancement strategies replaced hospitals’ cost reduction strategies.   Another  overview analysis at the time  pointed to how managed care cost containment and the need to restrain increases in health care expenditures lost out to the desire to support buyer preferences and concluded, “You cannot have your cake and eat it too.” These brief history lessons suggest that short-term remedies are quite perishable as the balance of power in political and economic markets shifts. Part 2 will explore broader lessons for beginning to transcend quick-fix responses to symptoms and focus more on long-term causes.  The post Health Care Costs and Conflicting Cycles of Responses: Back to the Future, Part 1 appeared first on American Enterprise Institute - AEI .