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Bill Would Change How CA Health Systems Contract with Health Plans

News  |  By Doug Desjardins  
   April 03, 2017

New rules would 'protect the rights of patients in terms of affordability and access,' says sponsor.

This story originally appeared in California Healthfax.

A new bill would abolish what it calls "anti-competitive" practices among large health systems in the state by creating new rules for how health systems contract with health plans.

Senate Bill 538, authored by Bill Monning (D-Carmel), would prohibit health systems from requiring health plans to include all of a health system's hospitals in a contract.

"SB 538 will help address the issue of pricing fairness and access to affordable healthcare in the state as well as help ensure California consumers are not subjected to unfair business practices that increase healthcare costs," said Monning.

The goal is to "protect the rights of patients in terms of affordability and access in an ever-changing marketplace," he added.

As written, SB 538 would also prohibit health systems and health plans from setting payment rates for affiliates of hospitals not included in an agreement.

Currently, large providers can "tie inflated prices in certain regions to their entire network of hospitals, even in more price-competitive regions," Monning said.

Curbing Copays
The bill would also prohibit health systems from requiring health plans to provide coverage to enrollees at the same level of copayment or deductible at all affiliate hospitals.

In addition, it would ban health systems from requiring health plans to submit to binding arbitration for antitrust claims.

Costs Rise Swiftly at Large CA Hospital Chains

Monning pointed to a 2016 study from the University of Southern California that estimates healthcare costs have grown faster at the state's two largest health systems—Dignity Health and Sutter Health—than at hospitals in the rest of the state.

Between 2003 and 2014, prices increased an average of 114% at Dignity Health and Sutter Health hospitals compared to a 70% increase at all other hospitals in California, the study estimated.

A separate study released in February by the Bay Area Council Economic Institute found that healthcare costs in Northern California are nearly 30% higher on average than in Southern California due in part to market consolidation and the presence of several large, dominant health systems.

"These studies show that, with consolidation of networks, prices are going up, not down," said Monning, adding that large health systems are able to "monopolize cost and cost-settings" in health plan contracts.

Groups supporting SB 538 include the Silicon Valley Employers Forum, the California Labor Federation, and the Pacific Business Group on Health.

Big hospital network cracks down on the right to sue

Although the bill does not name specific health systems, the provisions of SB 538 would apply to Dignity Health and Sutter Health, the two largest health systems in the state.

"It's premature for us to comment on SB 538, since we've not evaluated the final language of the bill," said a Dignity Health spokesperson.

Sutter Health declined to comment on the bill and referred inquiries to the California Hospital Association (CHA).

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