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June 18, 2019
David Burda
Economics Policy System Dynamics

States Foul-Tipping Regulatory Approaches to Control Healthcare Prices

A new Viewpoint in the Journal of the American Medical Association said states are trying, but largely failing, to control through various regulatory tactics the prices paid by private health insurers to healthcare providers for medical services.

The short, two-page piece by three health services researchers from the Johns Hopkins Bloomberg School of Public Health in Baltimore didn’t get much attention from the healthcare trade press or the national media interested in healthcare prices. But, I have a sense that history may show it to be one of those prophetic warnings that everyone ignored until it was too late.

The piece correctly pointed out that the gap between what public health insurers like Medicare pay for medical services and what private health insurers like commercial health plans pay for medical services is widening by the day.

In May, the Rand Corp. released a 60-page report on prices that did get a great deal of attention from the healthcare trade press and national media.

Rand researchers looked at claims paid by private health insurers to nearly 1,600 hospitals in 25 states for care to more than four million patients from 2015 through 2017. The private health insurers in 2017 paid hospitals an average of 241 percent more for the same services than did Medicare. They also found wide variations in that percentage among states and among health systems.

Unexplained variations in outcomes—clinical or financial—lead to suspicion, and suspicion often leads to regulation, as we warned in a previous blog post, “Opioid Variations and State Interventions.”

So states are trying to address rising healthcare prices in different ways, as the JAMA authors explained, and states are trying to do it in one of three ways:

  1. Targeted price regulation. These are tactics like limiting charges for out-of-network care and using reference pricing for specific services used by specific patient populations, like state employees.
  2. Promoting competition. These are tactics like increasing antitrust scrutiny, requiring certificates of public advantage, repealing certificate-of-need laws and expanding scope-of-practice laws for individual practitioners.
  3. Developing alternative payment models. These are tactics like creating an all-payer accountable care organization and all-payer global budget reimbursement mechanisms.

None of the tactics in any of the three buckets has been particularly effective, the researchers said.

“It is unclear how effective some of these have been in actually reducing health care spending while at the same time maintaining quality of care,” they said. “The best supported by evidence include rate regulation and all-payer global budgets for hospitals.”

In other words, creative tinkering around the edges in the hope that everyone will respond the right way doesn’t seem to work. Only hardcore rate regulation seems to do the trick.

At some point, hospitals, health systems, doctors, drug companies, device manufacturers, suppliers and others are going to price themselves into rate regulation at the state or federal level. Maybe they know that, and that’s why they’re charging and collecting as much as they can now because they may need it later. Maybe not.

As we mentioned in a previous piece, “This is a Story About Where Healthcare Regulations Come From,” rules and regulations and oversight and compliance typically can trace their origins back to bad behavior by the subjects of the rules and regulations and oversight and compliance.

So if you’re a seller in the healthcare marketplace and you don’t want strict rate regulation, stop it with the price gouging already. Enough is enough.


David Burda is a columnist for 4sight Health and news editor of 4sight Friday, our weekly newsletter. Follow Burda on Twitter @DavidRBurda and on LinkedIn. Read his bio here.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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