Countries That Use All-Payer Rate Setting Spend Less Than Us On Health Care

Over at the Incidental Economist, John Nyman, professor of health policy and management at the University of Minnesota School of Public Health, expands on this suggestion that policy makers should look at Maryland as an example of how all-payer rate setting — in which payers negotiate with each provider for a single price for each service — can help reduce health care spending. Nyman places U.S. health care spending in an international context and argues that “you have a strong argument for a causal relationship” between rate-setting and lower spending:

Because of the ascendant health insurance theory in the US (purporting to show that the additional health care consumed when insured is not worth the costs), the results of the RAND Health Insurance Experiment (purporting to show that additional care has no significant effect on health), and the political interests of the providers, we have spent much of the last 40 years trying to reduce healthcare costs by reducing the quantity: cost sharing, managed care, consumer-driven health care. According to the OECD data, we have succeeded, but costs are still double on a purchasing power parity basis. It seems to me that it is time to switch our focus to prices, rather than quantity. [...]

As Nyman notes, all-payer rate-setting is just one way of changing our focus on price, but it’s one that’s making a comeback within the health care community. According to a Commonwealth Fund/Modern Healthcare Health Care Opinion Leaders Survey from October 2010, a majority of experts actually “favor either all-payer payment rate setting or a single system of payment negotiation on behalf of all payers.” The strategy was popular in the 1970s and 1980s, when at least 30 states used all-payer rate setting to contain health care spending. More here.