Non-Profit Hospitals Get ‘Cost Review’ Board Under House Republican Bills

Article courtesy of MIRS for SBAM’s Lansing Watchdog newsletter

House Speaker Matt Hall (R-Richland Township) unveiled legislation Thursday morning that would require nonprofit hospitals to cut certain prices by 10%, restrict future increases and subject hospital mergers and acquisitions to state approval.

The four-bill package, HB 6116, HB 6117, HB 6118 and HB 6119, would also create a five-member Hospital Cost Review Board, establish a fund to support struggling rural hospitals and prohibit certain physician non-compete agreements within large hospital systems.

Hall said the proposal is intended to prevent hospital prices from rising faster than inflation and require hospital systems to justify increases based on higher costs for services, drugs, equipment or labor.

“One of the problems we’re having is that we’re giving these hospitals and the care system billions and billions of dollars,” Hall said. “And then they’re always coming back and asking for more money, and always saying they don’t have any money.”

Brian Peters, CEO of the Michigan Health & Hospital Association, said the organization and its members are reviewing the proposal and “remain engaged with lawmakers,” but cautioned against policies that could reduce rural access, destabilize local health care systems or increase costs for patients.

Peters said hospitals support efforts to reduce administrative waste, lower prescription drug costs, expand insurance options and promote healthier communities. However, he argued the package would impose additional administrative burdens and “arbitrary government price controls” at a time when hospitals are already facing financial pressures, pointing to the recent closure of Sturgis hospital, a 101-year-old rural nonprofit hospital.

“Our members are committed to ongoing dialogue with lawmakers to ensure policy proposals are evaluated with a clear understanding of their real-world impact on patients, providers and local healthcare systems,” Peters said.

Under the legislation, nonprofit hospitals would be required to reduce their total prices for services covered by private insurers by 10% and other entities with negotiated contracts. The reduction would have to occur within 14 days of the law taking effect and be applied uniformly among those payers.

The requirements would not apply to Medicare, Medicaid or other public health care programs. If an existing contract prevents a hospital from complying with the price reduction, inflation cap or patient charge limits, those provisions would not take effect for that hospital until the contract expires.

After the initial reduction, a nonprofit hospital’s overall annual price increase could not exceed inflation for the Detroit-Warren-Dearborn region. Hospitals would also have to demonstrate that both their overall price increases and increases for individual services were directly caused by higher costs of providing care.

Beginning Jan. 1, 2027, nonprofit hospitals would submit annual financial information to the proposed review board, including revenues, assets, liabilities, operating expenses, labor costs, rates and charges, capital investments, merger expenditures, tax exemptions and executive compensation disclosed through federal tax filings.

The board would meet with each nonprofit hospital to review its budget and would provide an opportunity for public comment.

The board would consist of five proposed members. Four of the members will come from a list submitted by each quadrant leader, so a Republican and Democratic leader in both chambers. The governor will choose from that list to appoint a member.

Members would be required to have knowledge of health care policy or delivery, or experience in business, finance or accounting. Three members would constitute a quorum, and three affirmative votes would be required for the board to act.

If the board believed a hospital violated the pricing requirements, it would first have to notify the hospital and spend 30 business days attempting to resolve the issue informally. Following an administrative hearing, a hospital found in violation would be assessed an amount equal to the estimated value of the tax exemptions it received.

The proposal would not revoke a hospital’s nonprofit status. Instead, a hospital found in violation would be ordered to pay an assessment equal to the estimated value of the tax exemptions it reported receiving for the year.

The bill would additionally cap what nonprofit hospitals could charge patients. An uninsured or self-paying patient could not be charged more than 150% of the Medicare reimbursement rate for a service. A patient whose insurer pays all or part of the bill could not be charged more than 200% of the Medicare rate. Those limits would not apply when no Medicare payment information exists for the service.

“They would be looking at the compensation of the executives, the costs that hospitals incur, and really make a decision based on their expenditures,” Hall said.

Rep. Jay DeBoyer (R-Clay)’s bill would require state approval before many hospitals and other health facilities could merge or be acquired.

A consolidation generally could not be approved if the resulting organization controlled more than 8% of hospital beds statewide or 15% of the beds within one of the state’s prosperity regions. It also could not exceed 3% of the statewide market for a particular category of health services or 15% of that market within a prosperity region.

Smaller transactions would be exempt if the facilities involved meet revenue limits outlined in the bill.

An applicant would have to pay a $10,000 application fee and commit to immediately reducing prices at the acquired facility by at least 2%. Prices at the facility could not subsequently rise faster than inflation.

The acquiring organization would also pay a “consolidation prevention assessment” equal to 12% of the purchase price or assessed value of the facilities involved.

The board could grant a hardship exemption from some of the market-share and price-reduction requirements when a facility is financially struggling, at risk of closing and consolidation is the only feasible way to prevent its closure. The acquiring entity would still have to agree to the inflation limit.

A consolidation completed without approval could result in a civil fine of up to 15% of the transaction’s value and could be declared void by a court. Violations of the post-consolidation price requirements could carry fines of up to $10,000 per day.

“This plan will prevent health care deserts and instances where people are forced to travel long distances just to be able to access care for themselves or their families,” DeBoyer said. “More access to care and lower costs. That’s what people we all represent are calling for and that these measures will deliver.”

Revenue from the assessments and civil fines would be deposited into a new Health Care Cost Reduction Fund.

Under legislation sponsored by Rep. Mike Harris (R-Clarkston), the money would support grants for qualifying rural, critical-access, rural emergency or sole-community hospitals experiencing unsustainable losses.

To qualify, a hospital generally would have to have an operating margin at least 3% below zero for three consecutive years and show no clear signs of recovery. The board would prioritize hospitals based on patient volume, the uniqueness of their services, the distance to alternative care and whether a grant could prevent closure.

“If the state is collecting revenue from corruption in the healthcare system, we have to ensure those dollars are reinvested to support the most vulnerable parts of our healthcare infrastructure,” Harris said.

The fourth bill, sponsored by Rep. Joseph Aragona (R-Clinton Township), would prohibit hospital systems with more than $2 billion in annual revenue from requiring physicians to sign noncompete agreements, unless the agreement only restricts the physician from working for another hospital system of that size.

“We want to give Michigan families more access to healthcare and help them afford that care when they need it,” Aragona said. “Hospital charges are out of control right now, and it’s all of us who are paying the price.”

Hall said House Republicans want to advance the package quickly and argued Democrats should support it if they are serious about lowering health care costs.

“These big hospital systems, they’re merging, they’re building new buildings, they’re raising pay for executives, and they’re raising costs, and it’s gotten out of control,” Hall said. “So, what we’re doing is trying to make health care more affordable.”

The bills were referred to the House Government Operations Committee.

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