Health care inflation consistently outpaces economic growth, and threatens to 'crowd out' other important societal priorities. This blog addresses efforts to control health care costs. The blog began as an outgrowth of a class at the Harvard School of Public Health, and is open to all. Please join us.
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Monday, October 21, 2013
Hospital Price Setting- Has the Time Come?
Managing Health Care Costs Number is $500 million
From Pauly and Town article (reference below)
I’ve been seeing more and more market failure in health
care, as provider consolidation continues to drive up unit price, and as the
pharmaceutical companies have figured out how to continuously increase prices
for new personalized drugs, and even old standby drugs that have been off
patent for years (or decades). If the
market is not helping us control costs – what will?
Almost all developed countries set prices for
pharmaceuticals, and many developed and less developed countries set prices for
medical services. Government isn’t
necessarily exceptionally efficient at setting prices – it is subject to
aggressive lobbying, imperfect information, inertia, and downright fraud. Still, the US system of allowing
pharmaceutical companies to set prices and requiring each payer to separately
set negotiate prices with each health care provider, including “must-have”
hospital systems, has left us with the highest prices in the world. There must be a better way.
was the best of the best when it came to hospital unit price regulation, and
even its system so far has been unable to control what really matters— total
spending growth. Other states with less
favorable markets, less favorable political settings, or less skilled
adminis-trators may well be unable to replicate even what Maryland did, much
less bite off total revenue containment.
On the other hand, Uwe Reinhardt argues
convincingly for all payer pricing. He
all-payer system would reduce the cost of the administratively complex current system,
which would allow private insurers to concentrate more of their resources on
helping their customers coordinate their care in a cost-effective manner.
Reinhardt points out that the Switzerland system, lauded by
Regina Herzlinger and other conservative commentators, includes all-payer
pricing. He notes that a lot of public
policy research is necessary to implement all-payer pricing in the US – and
concludes “legislating and implementing such a
system would be a major political challenge.” Harvard
Right now, we have two public payers which dictate prices –
Medicare and each state’s Medicaid program.
Both benefit from low unit prices and low price inflation rates,
although each could be argued to shift costs to private payers. The Affordable Care Act pushes health plans
to obtain lower unit prices through premium transparency, and eases the way for
limited network plans that decrease the leverage of big provider systems. It’s possible that these influences will
cause prices to converge eventually –
but this will take a long time.
Few would argue that we could immediately cut allowable prices at the
highest cost facilities by as much as fifty percent in a single cycle, but the
cost of the highest priced providers are not sustainable.
I believe that uniform or value-based prices will be increasingly
necessary to make our multi-payer system affordable. The question is whether we accomplish this
through payer consolidation and increased government payer programs, or through
legislative and regulatory action.
I’ll talk about the arguments for price regulation of
pharmaceuticals in a later post.