By Harris Meyer
Health Affairs Blog, October 13, 2020
Last month’s Rand Corporation report on the prices paid for inpatient and outpatient services to more than 3,000 US hospitals in 49 states is the latest salvo in an escalating battle to reduce health care spending through transparent pricing and greater market competition.
But stakeholders, including employers, workers, and state and federal policy makers, have a daunting task ahead to squeeze down hospital and physician prices, by far the highest in the world, in the face of fierce resistance to price transparency from both providers and insurers.
“The actors charging these prices are doing everything they can to keep prices secret,” said James Gelfand, senior vice president for health policy at the ERISA Industry Committee, which represents large self-insured employers. “That crazy, outrageous pricing persists because of the lack of information.”
Despite industry opposition, the secret-pricing system has to change, particularly if policy makers insist on preserving a market-based health care system rather than shifting to a government-run model with regulated prices such as Medicare for All or public-option health plans. The continued failure of the market model to hold down costs gives ammunition to Joe Biden and the Democrats, if they win the November elections, to establish a price regulation system.
A Legislative Approach
Ultimately, Congress has to get involved to make transparency happen because more than 100 million non-elderly Americans are covered by health plans that can only be regulated by the federal government. Lawmakers should backstop the Trump administration’s court-endangered transparency rules by passing legislation requiring hospitals and health plans to publish their negotiated prices.
Legislation also should limit providers’ monopoly pricing power by capping hospitals’ and physicians’ out-of-network charges at a reasonable percentage of Medicare rates, perhaps 125 percent. That would weaken providers’ negotiating trump card of threatening to stay out of an insurer’s network.
Health Affairs Comment:
By Don McCanne, M.D.
The emphasis on price transparency stems from the belief that the health care consumer can control spending through price shopping. It’s as if we’ve forgotten Kenneth Arrow’s classic lesson on how markets do not work in health care. Price shopping is effective only for marginal services and can have very little impact on our total national health expenditures.
Our health care financing system should be designed to assist patients in obtaining the care that they need. Yet our insurance innovations erect financial barriers to care through high deductibles and other cost sharing and by preventing coverage of out-of-network providers. Even the Trump administration’s expansion of short term plans exposes patients with health care needs to higher costs because of a reduction in covered benefits. And health savings accounts are strictly a tax gimmick for higher income individuals and not a ticket to health care.
Having medical problems is a burden enough without the additional burden of assessing greater financial penalties for accessing health care (out-of-pocket cost sharing and payment for services not covered).
Other wealthy nations cover nearly everyone at an average per capita cost of about half of what we spend while we leave tens of millions with inadequate health coverage and tens of millions more with no coverage at all. We already have more consumer-directed health care than most other nations, and our very high spending is proof that it is a flawed concept.
Rather than relying on patient-consumer shopping we should rely on government administered pricing since that has been effective in many other nations. Through a single payer, improved Medicare for All that uses negotiated prices, bulk purchasing, global budgets for institutions such as hospitals, separate budgeting of capital improvements based on need, and a dramatic reduction in wasteful administrative services, we can control excess spending while ensuring adequate capacity in the system. Everyone is included in an equitably financed system that is affordable for each of us. Price transparency can’t do that, not even close.
Wasting time and more excessive administrative services on price transparency will only further delay the comprehensive reform that we desperately need.
By Don McCanne, M.D.
In advocating for using price transparency to enable price shopping in the marketplace, the author also recommends “capping hospitals’ and physicians’ out-of-network charges at a reasonable percentage of Medicare rates, perhaps 125 percent.” This is an obvious concession that Medicare has been far more effective in controlling prices than has the marketplace. Further, why should we limit government price controls to the current Medicare program plus health care spending outside of private insurer provider networks? Why shouldn’t we all receive the benefit of government administered pricing?
Price increases have been far greater under the private insurers than they have through Medicare. Some of that has been due to excessive administrative waste of the insurers themselves and from the costly administrative burden they place on the health care delivery system. Much of that administrative waste could be recovered by using single payer economic tools as listed in my comment posted to the Health Affairs article above.
For those who have Medicare, when you review your explanation of benefits, were you aware of the listed prices before you received the services, or were you aware of the amount of the allowed charges and the adjustments for which neither you nor the government would be responsible? Of course not. Price transparency plays no role in determining Medicare payments. Government administered pricing is far more effective than price transparency in the health care marketplace could ever be.
We do need to improve Medicare so that we can get pricing right. Payments need to be adequate to cover legitimate expenses of the health care delivery system plus provide a fair margin for those delivering health care (profit, salary, or whatever is appropriate for the financial structure under which the health care services are being provided). Yet judicious use of our public funds would also require that price gouging be prevented. Other countries do that well. We can too.
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