Stanford plans to fight health care initiative in Palo Alto | News | Palo Alto Online |


Stanford plans to fight health care initiative in Palo Alto

As move to curb health care costs heads to the ballot, Stanford argues new rules are 'unconstitutional'

Stanford Health Care plans to mount a legal challenge to block a union-backed initiative that would cap how much medical institutions in Palo Alto can charge for patient services, according to a letter that Stanford's general counsel submitted to the city earlier this month.

On Monday night, the Palo Alto City Council will consider whether to do the same.

The measure, which is being spearheaded by the Service Employees International Union-United Healthcare Workers West, would prohibit local medical facilities -- including Stanford -- from charging patients more than 15 percent of what it costs them to provide care. Known as the Palo Alto Accountable and Affordable Health Care Initiative, the initiative received more than 3,500 signatures (it needed 2,407 valid signatures to qualify). Earlier this week, the Santa Clara County Registrar of Voters verified that the initiative has more enough signatures to get on the November ballot.

If approved by the voters, the initiative would require hospitals to issue an annual rebate to payers for services "in excess of the acceptable payment amount of these services," which is defined as 115 percent of the sum of "reasonable cost of direct patient care." The initiative would also require all hospital and medical clinics to submit to the Administrative Services Department information about the "reasonable cost" of patient care for each patient to whom services were provided that year, as well as information about every instance in which a rebate or a reduction has not been issued in full (as well as reasons).

The union has argued that the initiative will limit overpricing and incentivize improved quality of health care. Some health care providers, the union alleges, charge patients as much as 600 percent above cost -- overcharges that get passed on to consumers in the form of higher premiums, co-pays and other out-of-pocket expenses.

The initiative's stated aim is to provide "orderly regulation of hospitals and medical claims."

"The prices charged to patients and other payers have far-reaching effects on consumers purchasing insurance and taxpayers supporting public health and welfare programs," the initiative states. "Investments in quality of care improvements can benefit patients and caregivers, and ultimately result in lower overall health care costs."

"For these reasons, this Chapter seeks to impose reasonable limits on prices that hospitals and clinics may charge and encourages further investments in health care quality improvements," the initiative states.

But Stanford charges that the union's bid to rein in prices is illegal and unconstitutional. In a letter to Palo Alto City Attorney Molly Stump, Stanford's Chief Hospital Counsel Sarah DiBoise wrote that the hospital believes the initiative is "facially invalid and an improper exercise of the initiative power."

"If the Palo Alto city clerk certifies the sufficiency of the signatures submitted in connection with the Initiative and the city council votes to place the initiative on the ballot, Stanford intends to challenge the validity of the measure," DiBoise wrote. "We hope that, rather than place the Initiative on the ballot, the City of Palo Alto would join us in that effort to stop this unconstitutional and otherwise unlawful measure from appearing on the ballot."

The SEIU rejects these arguments. Stanford's threatened legal challenge is a "desperate attempt to stop an initiative they don't think they can defeat at the ballot box," SEIU spokesman Sean Wherley told the Weekly in an email.

"It's a typical attack we've seen with other initiatives: challenge it up front to try to keep if off the ballot, and when that doesn't work challenge it in court after it passes," Wherley wrote. "We are confident that the ballot initiative is constitutional and is not pre-empted by existing state and federal law."

The union has submitted similar initiatives in Redwood City, Pleasanton, Livermore and Emeryville. So far, Emeryville is the only city that has opted to legally challenge the initiative on due process and pre-emption grounds. Emeryville had also requested a stay from the court that would allow its City Attorney to not submit a ballot title and summary.

On Monday night, before its regular meeting, the Palo Alto council will meet in a closed session to consider whether it should follow Emeryville's example or consider other legal options. City staff, for their part, see some reasons for concern about the SEIU initiative. A new report from the offices of City Manager James Keene and City Clerk Beth Minor argues that the measure "raises significant issues as to its legal validity based on federal and state law pre-emption," the SEIU's assertions about the measure's legality notwithstanding.

"Health care pricing and reimbursement are complex areas of regulation that are addressed by several federal and state laws," the report states. "Cities cannot regulate by local ordinance in those areas that the state has fully occupied either expressly or impliedly, or where the local ordinance would conflict with state law."

There's also the more practical question of who will enforce the law. The initiative charges the Administrative Services Department with gathering the information and implementing the new regulations. But officials readily admit that the city currently does not have expertise or experience in the realm of health care. If the measure was to pass, the city would need to "establish and identify funding for an administrative structure to implement this program," the staff report states.

Because this would be a new function for a local government, it's not clear how much it would cost to take on the new responsibility and how much it would take to set up the regulatory framework, according to staff.

Wherley countered that the costs to cover the initiative can be offset through funds that the city will assess against violators. It's up to the citizens of Palo Alto, he said, to decide "if they want their city to take a lead in ensuring quality and affordable health care."

Then there is a broader concern about what the initiative would do to medical practitioners in Palo Alto. According to DiBoise, Stanford's preliminary calculations indicate that the initiative's implementation would result in a revenue decline of between 20 to 25 percent, which she said is "many times greater than Stanford's margin."

"As a consequence, Stanford would have to implement cuts to its staffing and benefit levels, facilities, and/or programs to avoid violating the statute and incurring still greater expenses in the form of finds and interest on rebates required by the Initiatives."

In the new report, city officials raise concerns about the impact that the measure would have on the local medical sector, which they say is "a significant part of Palo Alto's Vibrant Economy." If they realize the types of revenues that Stanford expects, some will likely leave the city, the staff report states.

"To the extent that this type of result would apply to other providers, and the uncertainty inherent in navigating this new system, it is possible, if not likely, that a fair number of providers would elect to relocate their practices," the staff report states.

And while the SEIU maintains that the measure would reduce costs and improve accountability, city officials are concerned that in doing so, the measure may also deprive residents of options. The report notes that staff cannot at this time quantify the impact of the initiative on residents. The report notes that residents who use affected medical providers "could experience a decrease in their health care costs."

"If these service providers left Palo Alto, however, those cost reductions would not occur and city residents would need to travel further to obtain medical services," the city report states.

The SEIU, however, rejects this argument as a "scare tactic" from an opposition that "does not want to address the real issues."

"In essence they are saying that they're willing to uproot themselves if they can't continue to price gouge," Wherley said.


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17 people like this
Posted by KSB
a resident of Crescent Park
on Jun 10, 2018 at 7:25 am

As a resident, I question exactly what SEIU stands to gain from this initiative.

As a parent, I’m concerned I’ll lose access to independent providers such as my kids’ pediatrician, or face even longer wait times for urgent care and ER since the entire Bay Area will flock to Palo Alto for cheaper medical care.

11 people like this
Posted by FactedUp
a resident of Crescent Park
on Jun 10, 2018 at 7:54 am

> I’m concerned I’ll lose access to independent providers such as my kids’ pediatrician, or face even longer wait times for urgent care and ER since the entire Bay Area will flock to Palo Alto for cheaper medical care.

Is there any factual basis for that, or are you fear-mongering, the typical tool of the health care industry that really doesn't seem to mind seeing costa and profits continue to climb higher and higher while the reservoir of sick Americans and their problems continues to grow? Specifics please?

7 people like this
Posted by Citizen
a resident of Palo Alto High School
on Jun 10, 2018 at 10:23 am

I use medical care and realize costs - of living, transportation, gas and everything vary from area to area. This is a high cost area. Fact.

22 people like this
Posted by Citizen2
a resident of Another Palo Alto neighborhood
on Jun 10, 2018 at 11:51 am

The medical centers in question are non-profits. How exactly is it a problem to then limit the excessive overcharging? It seems to me the most important aspect of this is the transparency and accountability, which, again, shouldn’t be a problem for a nonprofit.

That is the essence of checks and balances, Stanford, which you need to operate at your best. This proposal is a long time coming. What is Stanford going to do other than fight for the right to charge excessive fees that make people bankrupt and ruin their recoveries from the care they get (as studies show medical billing and paperwork problems can hurt recovery from care).

11 people like this
Posted by end game?
a resident of College Terrace
on Jun 10, 2018 at 12:16 pm

What is SEIU's end game here? Why is it in their (or anyone's) interest to limit the amount Stanford Med charges insurance companies? And is this even legal?

21 people like this
Posted by Unions killing California
a resident of Old Palo Alto
on Jun 10, 2018 at 6:01 pm

Here’s an innovative way for SEIU to use their union power at the ballot box to penalize the private sector.

Unions didn’t get what they wanted at the bargaining table, so the bludgeon their opponents with the ballot box.

Our state is SOooo doomed.

15 people like this
Posted by FactedUp
a resident of Crescent Park
on Jun 10, 2018 at 10:12 pm

With the successful media attacks or 40 years on unions, and blowhard government leaders like Reagan vilifying unions, the bargaining power and hence the wages of the American workers have been stagnant for all the time, and the say in the workplace is non-existent, and the rights and protections of workers are being eroded continuously.

In German they have laws that say companies must have worker representation on the board of directions of every company above a certain size. This echo-chambered one line story about how unions are so terrible is never looked at of explored by out media ... proof that the news media is owned by the business class and that they are willing to undermine our society and economy to dehumanize people any way they can.

These attitudes are particularly intense at Stanford, and of the major local hospitals, can it be a mere coincidence that Stanford is not represented in the list of the nation's best hospitals published recently.

Profit driven health care is bad enough, but extreme partisan profit driven health care delivers the worst results.

20 people like this
Posted by Unions killing California
a resident of Old Palo Alto
on Jun 11, 2018 at 7:05 am

“Bargaining power...stagnant “?

You’re kidding, right? Unions run this state. They own the Democrats in a state with one-party rule. The union bargaining power is so dominant that unions are larger campaign donors than corporations in California.

We have the highest taxes and the lowest performing teachers union. (Okay, I know you’ll claim we’re above Mississippi, but that’s not a victory).

Unions already control government, education, and regularly bludgeon taxpayers. Now they are going after hospitals , or rather a hospital with deep pockets for no other reason than: ‘because we can’

It is a gross abuse of democracy to use the ballot box for extortion.

5 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jun 11, 2018 at 5:36 pm

"Stanford plans to fight health care initiative in Palo Alto"

That settles it. I'm voting yes.

7 people like this
Posted by Citizen2
a resident of Another Palo Alto neighborhood
on Jun 12, 2018 at 2:00 am

What about a competing initiative that requires Stanford to simply publish, in a clear and transparent format, the actual costs of various medical procedures and care, along with how it arrives at those numbers, and also what it charges for those?

And also requiring Stanford to give patients a binding cost estimate under their respective plans in a timely way before any care so that patients can make reasonable choices?

Although I like the proposal, I am concerned about Stanford then encouraging unnecessary medical procedures which I have already witnessed.

6 people like this
Posted by Bunyip
a resident of Adobe-Meadow
on Jun 12, 2018 at 6:36 am

SEIU clearly doesn't understand healthcare. What hospitals "charge" and what they receive are two different things. Imagine sitting at a restaurant and due to laws you have to provide all the appetizers for free. Then you can ask about payment, at which time half of the diners will only agree to pay for half their dinner. To ensure you can remain open, you charge, accounting for the knowledge that the majority of customers do not pay full freight, a certain rate.

And also remember, the negotiated prices aren't with customers, but with insurance companies. Therefore the money that is proposed to be returned is to the insurance company and won't ever reach the "customer".

The nurses union must be livid, if the SEIU proposal goes through, as the largest labor unit in hospitals, they will be the first to be reduced. Fireworks are coming!

10 people like this
Posted by former Stanford trainee
a resident of Downtown North
on Jun 12, 2018 at 8:44 am

This initiative is a disaster. By charging 30 dollars for an aspirin, it enables them to pay for those without insurance. When I was there, people from the Middle East flew to Stanford for care ran up huge bills and never paid. We are not allowed to turn away patients who show up at the door.

SEIU was also behind the $180,000 anti Stanford ad blitz. The nurses, I am told, were not a part of this.

4 people like this
Posted by Concerned
a resident of Community Center
on Jun 13, 2018 at 1:13 am

Clearly, SEIU has a beef with Stanford. Patients, particularly low income patients insured by Medicare and Medical, are caught in the middle and will bear the brunt of this pissing contest, as usual. ALL healthcare providers in this area have to charge for services at a rate commensurate with the market. Everything is more expensive here....has anyone looked at real estate prices lately? Has anyone tried hiring workers for their businesses? This is a great way to get local healthcare providers to close their doors to patients with public insurance like fee for service Medicare because they just can no longer afford iti care for them.....because now they have to pay rebates to insurance companies?? Great job SEIU. There is not one word in this measure that guarantees that those rebates translate to cost savings for patients. Who feels good about enhancing the revenues of insurance companies?? Not me, I’m disgusted. Further, do voters really expect the city to enforce this? It would require an entire office/staff to oversee these “rebates”....funded by taxpayers, of course. Healthcare is complex, and definitely needs fixing, but this is NOT the answer. Wake up Palo Alto voters....don’t sign petitions if you don’t fully understand the implications just because it makes you feel like you’re standing up to something. I guarantee that if most people who signed this petition really understood it, it would not stand a chance for the November ballot.

3 people like this
Posted by Concerned resident
a resident of Professorville
on Jun 13, 2018 at 1:08 pm

This is idiotic, unenforceable, and a potential disaster for Palo Alto, for all the reasons cited by others. This is an enormously complex arena where the impacts on health care providers, patients, insurers and the city itself are impossible to gauge, no less monitor and reinforce. The idea that Stanford would itemize why it is charging what it charges in each individual case when it deviates from an impossible to calculate norm and that Palo Alto would somehow assess this in thousands of situations of what is often very complex care is a joke. As others have pointed out, the insurance companies have already negotiated and worked this out, along with state regulators.

This is not to say that the cost of medical care is not an enormous problem and that the system is crazy. But that is an issue for state and national government, not Palo Alto. This makes no more sense than saying that every restaurant cannot charge more than what In-n-Out Burger charges, and that for every burger sold for more than that (Umami, are you listening?), they have to write up an elaborate justification for why, and that Palo Alto will have the infrastructure in place to judge each separate situation. Now extend that to every dish sold by every restaurant in Palo Alto. And now extend it to every service provided by every business in Palo Alto. And now imagine that the price on the menu is actually not what people pay. And that only 40% of people pay for their food or service even if there is a bill. You get the idea. This really should not be on the ballot. It is not, as the sponsors would like to have people believe, a vote for cheaper healthcare.

1 person likes this
Posted by Citizen
a resident of Los Altos
on Aug 25, 2018 at 2:57 am

Can someone explain why a healthcare worker union is pushing this measure? They supposedly represent healthcare workers, and this initiative will guarantee that a SIGNIFICANT number of people get laid off, probably thousands. How are the union members okay with this? Something doesn't add up and there is definitely some ulterior motive that these people are not sharing. It honestly sounds like the insurance companies have bought and paid for the leaders of this union, or some kind of vendetta.

What a hospital charges is irrelevant - they can charge whatever they please, but they're only going to get reimbursed what the insurance company feels like paying (which is largely based on Medicare reimbursements), if a patient has insurance. To then give these very same insurance companies REBATES? That is insane - already the insurance companies short change the hospitals, and then they skim more? This is clearly a measure intended to pad the insurance companies profit margins further. It will make the healthcare crisis so much worse. Most costs of medical care go to insurance companies.

And just imagine what is going to happen to the local medical market in Palo Alto. In terms of what the insurance company reimburses, most departments of a hospital actually lose money because reimbursements don't cover the costs. The only reason hospitals stay afloat is because of the revenue generated by surgery and anesthesia - those things support most of the remaining departments that are not profitable such as primary care, rehabilitation, the emergency department, urgent care, the trauma center, etc... Since this measure doesn't limit AVERAGE charges across departments but per patient, the ability of the profitable departments to support the rest of the hospital will be gone. So those unprofitable departments will be the first immediate casualties in an attempt to remain solvent - the hospital will close the ED, shut down urgent cares, limit primary care, probably cease trauma operations. God forbid anyone in Palo Alto get in a car accident, or their kids get injured during sports practice, suffer a heart attack or stroke, because you'll be wasting precious minutes traveling to San Jose or San Francisco.

And the fact that other hospitals in the area, the UC system in particular which is exempt, are unaffected would essentially destroy Stanford and PAMF's ability to compete. Patients want fancy hospitals with private rooms, and new facilities. Maybe the new hospital would get finished in time, but renovating the old one or building new centers, no way. Stanford, the children's hospital, and PAMF would probably be able to survive for a little while by closing services that lose money and laying off thousands, they would eventually go out of business or move elsewhere. And that's tremendously harmful to not just Palo Alto but anyone who. has ever benefitted from the medical research performed at Stanford, because there would be no more of that. If this measure was passed 50 years ago, we wouldn't have an effective treatments for lymphoma or a multitude of other cancers, no radiation therapy for cancers, no heart transplants, no anti-rejection drugs critical to all other transplant patients, no cholesterol drugs, no rescue antidote for people with hemophilia, and on and on. This measure would be a travesty and would destroy one of Palo Alto's and the Country's gems in the fight against disease, but the insurance companies would more profitable than ever - just what we need.

Like this comment
Posted by Anon
a resident of Another Palo Alto neighborhood
on Aug 25, 2018 at 5:24 am

Citizen wrote:

>> Can someone explain why a healthcare worker union is pushing this measure?

Good questions. This measure is, overall, ill-conceived IMHO.

>> What a hospital charges is irrelevant - they can charge whatever they please, but they're only going to get reimbursed what the insurance company feels like paying (which is largely based on Medicare reimbursements), if a patient has insurance.

I don't agree with you. I think patients have the right to know how much the actual cost of service is. The point you are missing or ignoring is that when you need urgent or ER care, for example, there is no free-market price. The hospital in front of you is a monopoly, and yes, they do charge whatever they please.

This excellent article clearly explains how the current system is severely broken:

Web Link

The US employer-based health insurance system is not rational. It needs to be replaced. I don't think the SEIU initiative makes sense, but, I do understand the frustration with the current system.

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