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States Foul-Tipping Regulatory Approaches to Control Healthcare Prices

Blog | 
Economics | 
System Dynamics | 

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 4sight Health Author
David Burda News Editor & Columnist

Dave is 4sight Health’s biggest news junkie, resident journalist and healthcare historian. He began covering healthcare in 1983 and hasn’t stopped since. Dave writes his own column, “Burda on Health,” for us, contributes weekly blog posts, and manages our weekly e-newsletter and weekly podcast, 4sight Friday and 4sight Roundup. 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. Follow Burda on Twitter @DavidRBurda and on LinkedIn.