Price controls

'Anyone looking for a clue about the future of health policy debates should take note of a Center for American Progress panel convened earlier this month. The topic at hand was journalist Steven Brill's Time magazine story on high medical bills, which compared rates charged to uninsured and privately insured patients with the negotiated, lower per-service rates charged to Medicare.

 

But rather than push for a government-run, single-payer system—what liberals often term "Medicare for all"—several of the left-leaning health experts on hand talked up a technocratic alternative known as "all-payer": Instead of the federal government serving as a universal insurer, as in single payer, the government would set payment rates for the entire system, public and private, eliminating price discrepancies for different payers.

 

In other words, price controls. This is the great new idea that has gripped liberal health wonks as health costs have continued to rise: to simply have the government declare that prices must be lower. That's neither a new idea nor a particularly great one, and there's little reason to think it will have result in meaningful restraint of health care cost growth.

 

All-payer and other forms of rate setting have a long history in the U.S. Throughout the 1970s and into the early 1980s, multiple states experimented with various forms of state-driven rate setting. The Nixon administration pursued a bevy of wage and price controls, while Congress passed legislation encouraging states to set up rate-setting regimes. A federal effort backed by President Jimmy Carter failed to pass, but by the end of the decade states such as Maryland, New York, and New Jersey were all moving forward with ambitious all-payer-style price control systems.

 

Those systems, however, became impossible to sustain pretty quickly. For one thing, they were just too complicated: Not only did these systems attempt to set rates for every single hospital product and service, they also included provisions attempting to redistribute funds from relatively wealthier hospitals to relative poorer hospitals. The result was a labyrinthine system of reimbursement procedures and payment exceptions that confused even the public administrators who were supposed to oversee its workings.

 

As Harvard health professor John McDonough chronicled in a 1997 essay for Health Affairs, officials from many of the states that tried rate-setting later concluded that "the statutes and regulations needed to sustain their rate-setting systems were complex and often incomprehensible." McDonough quotes the former chair of Massachusetts Senate Health Committee describing the payment rules as being "like Sanskrit—no one could understand them."'

 

http://reason.com/archives/2013/03/20/why-price-controls-wont-fix-american-hea