The Next Frontier in Health Reform

With the public expressing outrage over startling insurance rate hikes, lobbyists for insurance companies are trying to persuade people that it’s skyrocketing provider prices rather than anything the insurers are doing that’s largely to blame. And as my colleague Igor Volsky notes there’s quite a bit of truth to this. Robert Berenson, Paul Ginsburg, and Nicole Kemper argue in Health Affairs that “dominant providers” have gotten extremely good at extracting ever-more-money from patients:

On average nationally, commercial insurers’ hospital and physician payment rates are nearly 30 percent and 20 percent higher, respectively, than Medicare rates. Evidence from two decades of hospital mergers and acquisitions nationally demonstrates that consolidating hospital markets drives up prices, with disagreement only over the magnitude of the increases. Some researchers have concluded that formation of hospital systems has primarily served to increase market power — not improve quality or efficiency of patient care — at least in the short run….A single “must-have” hospital can develop enough clout to obtain payment rates much higher than Medicare’s, acknowledging that many providers believe Medicare payments to be inadequate.

Igor suggests that Maryland may point the way forward with its all-payer rate setting system, similar to what’s used in France, the Netherlands, Japan, Australia and Germany:

The health reform bills in congress take a whole bunch of tentative steps toward provider-side reform. But if this bill passes, we’ll find that these issues are the next frontier in health reform. Simply put, there’s way too little competition in actual health care services. The bill takes a few steps in this direction, most notably in terms of price transparency, but more is going to have to be done.