SACRAMENTO 鈥 Gavin Newsom put California鈥檚 health care industry on notice when he was a candidate for governor, vowing in 2018 to go after the insurance companies, doctors and hospitals that leave many Californians struggling with enormous medical bills and rising insurance premiums.
He pledged to lead California鈥檚 single-payer movement, a high-stakes liberal dream that would eliminate private health insurance and slash how much providers are paid. The tough rhetoric continued after he was elected, when Newsom told insurers to 鈥渄o their damn job鈥 to improve mental health treatment or face fines, and he vowed to cut the health care industry鈥檚 soaring revenues.
鈥淲e鈥檝e got to get serious about reducing health care costs,鈥 the first-term Democrat said in January 2020 as he unveiled his proposal to establish an that would do the unthinkable in a system powered by profits: set caps on health care spending and require doctors and hospitals to work for less money. 鈥淲e mean business.鈥
Industry leaders were rattled. But rather than mobilize a full-throttle defense to sink Newsom鈥檚 effort to regulate them, they have used their political clout and close ties with the governor to devise a friendlier alternative that doctors, hospitals and insurance companies could live with.
When Newsom ultimately for the office, he took an idea health care executives had pitched and made it his own: Instead of capping prices or cutting revenues, he would allow industry spending to grow 鈥 but with limits.
Political infighting killed the legislation this year, but it is expected to come back in January and spark one of next year鈥檚 blockbuster health care battles.
鈥淭hey鈥檙e fearful of what might happen to them, and they鈥檙e trying to protect their interests because they鈥檙e threatened,鈥 David Panush, a veteran Sacramento health policy consultant, said about health care industry players. They know 鈥渢here鈥檚 blood in the water and the sharks are coming.鈥
If Newsom鈥檚 plan to rein in health care spending succeeds, it could provide him some political cover as he campaigns for reelection next year, giving him a major health care win even as he sidesteps progressive demands such as creating a single-payer system.
But it could also cement the power of an industry that continues to wield immense influence 鈥 negotiating behind the scenes to protect its massive revenues and secure exemptions and side deals in exchange for its support.
鈥淓very time we try to do something to reduce health care costs, it meets with huge opposition,鈥 said state Assembly member Jim Wood (D-Santa Rosa), head of the Assembly Health Committee, who is working closely with the Newsom administration on this .
Industry power players have only pushed back harder as lawmakers have tried to take them on, Wood said. 鈥淎nybody or anything that disrupts the status quo is met with huge resistance and huge resources to fight it,鈥 he said.
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When Newsom took office in 2019, he knew public sentiment was turning against the health care industry. On average, health care costs were around up from $4,600 in 1999, according to federal data. In California, for the biggest share of spending, nearly one-third, while 20% of health care dollars goes to doctors.
California consumers are demanding action, with 82% of state residents saying it鈥檚 鈥渆xtremely鈥 or 鈥渧ery鈥 important for the governor and legislature to make health care more affordable, according to a from the California Health Care Foundation.
Much of Newsom鈥檚 tough talk on industry spending came early in his term. 鈥淲e鈥檙e going to create specific cost targets for all sectors to achieve, and we are going to assess penalties if they don鈥檛 achieve those targets,鈥 Newsom said in January 2020. 鈥淚f that didn鈥檛 wake up members of the system, I don鈥檛 know what will.鈥
Newsom鈥檚 wake-up call came on the heels of tense legislative debates on bills that would have empowered the state to and created a . The measures gained surprising momentum but ultimately buckled under opposition from health care giants.
Then the covid-19 crisis hit and propelled the recall effort to oust him from office 鈥 and the wake-up call was met with a slap of the snooze button. The governor and his health industry allies nestled closer. Just as he needed them to be the state鈥檚 front line of defense, they needed him to keep hospitals from overflowing, to secure protective gear and to push vaccinations.
Health care titans became regular fixtures in Newsom鈥檚 orbit. His calendars, obtained by KHN, show that doctors, hospitals and health insurance leaders have routinely received access to the governor.
Carmela Coyle, head of the California Hospital Association, stood beside Newsom at the state emergency operations center in the early days of the covid crisis, and Paul Markovich, CEO of Blue Shield of California, obtained a lucrative no-bid state vaccination contract to implement Newsom鈥檚 vaccination effort.
The coziness of the industry鈥檚 relationship with Newsom burst into public view in late 2020 when he was photographed dining at the ritzy restaurant with Dustin Corcoran and Janus Norman, the CEO and top lobbyist, respectively, of the state doctors鈥 lobby, the California Medical Association.
鈥淭here is no possible way we could have come out of this covid crisis where the health care industry was given so much power without influence coming along with that,鈥 said Carmen Balber, executive director of the advocacy group Consumer Watchdog.
Newsom did not respond to questions about the industry鈥檚 influence, but spokesperson Alex Stack said his proposal to regulate health care spending 鈥渋s a priority for this administration, and we look forward to continuing to work on this issue to get it done.鈥
Doctors and Blue Shield have given Newsom millions of dollars to support his political career over many years, including a $20 million donation in September 2020 from Blue Shield for his homelessness initiatives.
The recall effort earlier this year only solidified Newsom鈥檚 relationship with health care executives. Industry groups wrote checks to the , which fought to keep Newsom in office. It received $1 million each from Blue Shield and the hospital lobby and $875,000 from the doctors鈥 lobby, according to state campaign finance records.
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Though Newsom vowed to go after the industry, he hasn鈥檛 aggressively taken it on, and health care executives and lobbyists continue to wield their influence as they shape the debate over the Office of Health Care Affordability.
That could put Newsom in a political bind as he runs for reelection 鈥 first in the June 2022 primary and then the November general election 鈥 because he will face intense opposing political pressure from liberal Democrats who want him to keep his campaign promise and adopt single-payer.
Health and political experts say Newsom can help alleviate that pressure by adopting a strict law going after spiraling health care spending.
鈥淭his issue isn鈥檛 going away 鈥 it does need to be addressed,鈥 acknowledged Corcoran. The push to control costs 鈥渟hould be uncomfortable for everybody, but not horribly so.鈥
But it won鈥檛 be easy. After powerful industry leaders joined forces with and to propose a plan to the governor, they jammed negotiations with their demands, splintering the coalition and killing the effort this year.
Coyle, with the hospital association, had left early out of concern that hospitals were the primary target, and approached the Newsom administration independently. She is also asking Newsom to relax stringent earthquake safety standards for hospitals.
Corcoran wants to exempt 鈥渟mall鈥 doctor practices 鈥 which he defines as practices with up to 100 doctors 鈥 from regulation, arguing that restrictive government cost controls could put them out of business, leading to increased industry consolidation and higher prices.
鈥淭he goal posts were constantly shifting,鈥 said Yasmin Peled, a lobbyist for the advocacy group Health Access California, which was involved in negotiations. 鈥淭he asks were constantly changing.鈥
Before negotiations completely broke down, Newsom embraced the idea floated by Coyle: The state should control growth, not impose revenue cuts. And it should not focus only on hospitals, but apply to all health care sectors, including doctors and insurers. (The pharmaceutical industry would not be subject to the cost control provisions of the measure because of restrictions in federal law, according to Wood鈥檚 office.)
With battle lines drawn, industry groups are poised for a major fight next year as Newsom and state Democratic lawmakers muscle through legislation. Their primary goal will be to protect their interests, said Mark Peterson, a professor of public policy, political science and law at UCLA.
鈥淭here鈥檚 no question this industry has power. The real question is what they do with it,鈥 Peterson said. 鈥淭hey鈥檙e getting wins, and important ones.鈥
This story was produced by , which publishes , an editorially independent service of the .