What would the Biden-Sanders recommendations mean for hospitals?

Former Vice President Joe Biden’s official campaign website quotes the presidential candidate as saying, “We have to protect and build on Obamacare.” Indeed, Biden’s current policy stances touch upon the three main areas of focus in the Affordable Care Act (ACA): access, quality and cost.

But they go further, in part, as a result of negotiations with more progressive representatives of  Sen. Bernie Sanders (D-Vt.). The negotiations produced the “Biden-Sanders Unity Task Force Recommendations,” a 110-page document which was released in July. Notably, a fifth of the report was devoted to healthcare. Given the schisms within the Democratic Party as well as the reduced size of the 2020 Democratic convention due to COVID-19 concerns, the recommendations may effectively supplant the Democratic Party platform, which traditionally is voted on and passed at the convention.

Access

As was the case with the ACA, the Biden-Sanders recommendations affirm healthcare as a human right, advocating “free or low-cost healthcare coverage for every American, including by expanding Medicaid, subsidizing employer health insurance for people who lose their jobs, and offering a high-quality low or no-cost public option available without a deductible and with automatic enrollment for those who qualify throughout the COVID-19 crisis.”

In general, expanding coverage benefits hospitals by reducing bad debt expense, which for U.S. hospitals averaged 1.73% of revenue in 2018.^[a] According to Rich Umbdenstock, former president and CEO of the American Hospital Association (AHA), the hospital industry agreed to support the ACA because the Obama administration and Congress promised that at least 97% of Americans would have healthcare coverage.^[b]

Quality

Although the Biden-Sanders task force recommends establishing a public-private national project to improve patient safety, it is unclear how such a project would impact hospitals, especially given the well-established patient safety initiatives of the Agency for Healthcare Research and Quality, the Institute for Healthcare Improvement, the National Quality Forum, The Joint Commission and other organizations.

The recommendations also include support for alternative payment models (APMs), including “accountable payment” in the public option and Medicare, which presumably would involve quality measures, and accountable care organizations, which are subject to quality measures.

Cost

In terms of cost-containment actions, in addition to the support for APMs, the task force recommends aggressive enforcement of antitrust laws to counter industry consolidation and prevent price increases. It also recommends two ideas that could adversely impact hospitals.

Pricing transparency. The Biden-Sanders recommendations include establishment of a “transparent all-payer pricing database.” Although details of this proposal have not been provided, hospital associations have consistently opposed pricing transparency initiatives, most recently in regard to the FY21 proposed inpatient prospective payment system (IPPS) rule, which mandates that facilities publish privately negotiated rates by Jan. 1, 2021.

Commenting on the proposed IPPS rule, Tom Nickels, executive vice president for the AHA, said: “We are very disappointed that CMS continues down the unlawful path of requiring hospitals to disclose privately negotiated contract terms. The disclosure of privately negotiated rates will not further CMS’s goal of paying market rates that reflect the cost of delivering care. These rates take into account any number of unique circumstances between a private payer and a hospital and simply are not relevant for fixing Fee-for-Service Medicare reimbursement.”^[c]

Unionization. Although the Biden-Sanders task force recommendations mention unionization briefly, its potential impact on hospital finances could be profound. The recommendations state, “Any (healthcare) employer funded by taxpayer dollars must allow workers to join together in a union and collectively bargain.…”

Because a majority of hospitals receive Medicare or Medicaid payment and, with the COVID-19 pandemic, most have received grants or loans from the federal government, this policy would apply to virtually all hospitals.

According to the U.S. Bureau of Labor Statistics, in 2019, only 11.8% of healthcare practitioners and technical occupations and 7.4% of healthcare support occupations were members of unions, so requiring unionization would fundamentally change the nature of labor-management relations for most hospitals. Unionization, especially when combined with collective bargaining, would almost certainly lead to increased wages, an outcome described by economists as the “union wage premium.”

According to Alex Bryson of the National Institute of Economic and Social Research in the U.K., “Evidence for the U.S. and for the U.K. often points to a union membership wage premium of between 10% and 15% … .”^[d]

Increased labor costs of 10% to 15% would be devastating to hospital finances, given that the median hospital operating margin was 1.7% in 2018, and operating margins plummeted this spring due to large-scale volume and revenue declines coupled with flat to rising expenses at the beginning of the coronavirus pandemic.^[e] The possible responses by hospitals include furloughs and layoffs, as well as cutbacks in other areas, such as capital budgets. As Bryson concludes, “[T]he effects [of the union wage premium] will have a negative impact on firms where the premium is extracted from firms that have no ‘excess’ profits .… .”

Positives and negatives

As with the ACA, the Biden-Sanders recommendations offer a mixed bag of potential positives and negatives for hospitals. Provider organizations would welcome the access recommendations, and the quality initiatives generally align with the status quo. But the pricing transparency and unionization recommendations constitute major changes that could adversely impact hospital finances and operations. 

Footnotes

a. Shoemaker, W., “Bad debt expense benchmarks: U.S. acute care hospitals show improvements since 2015,” hfm, Oct. 1, 2019.

b. Chaddock, G. R., “Healthcare reform: Obama cut private deals with likely foes,” Christian Science Monitor, Nov. 6, 2009.

c. Nickels, T., “AHA statement on FY 2021 proposed IPPS rule,” press release, May 11, 2020.

d. Bryson, A., “What are the economic implications of union wage bargaining for workers, firms, and society?” IZA World of Labor, July 2014.

e. Mensik, H., “Operating margins plummet at US hospitals, Kaufman Hall says,” Healthcare Dive, April 22, 2020.