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New York Health Law

Are Mandatory Price Controls the Answer to America’s Health Care Woes?

Posted in Hospitals and Health Care Facilities, Insurance and Managed Care, Long Term Care, Home Health and DME, Medicaid and Medicare, Physicians and Other Licensed Professionals

In this election season, both presidential candidates offer plans to deal with the rising cost of providing health care services, the President’s “Obamacare” by increasing the number of insured individuals through Health Insurance Exchanges, and reducing costs for a continuum of services through Accountable Care Organizations; and Governor Romney by a consumer-driven approach through Medicare vouchers, tax credits, and Health Savings Accounts.

A recent article on the website Salon written by Michael Lind of the centrist New America Foundation poses the provocative thesis that the immense and ever-increasing cost of providing health care services in the United States could be remedied by aggressive, mandatory price controls by the US government on all health care services – hospitals, nursing homes, physicians, prescription drugs, etc.

Now this already occurs in part.  The government sets prices to be paid by Medicare and Medicaid to providers of care.  However, this has little effect on the majority of the population with private insurance or no insurance.  Each insurance company or managed care entity negotiates fees with providers, but none have the market strength necessary to effect national changes in pricing.

 What if tomorrow the US government set out a mandatory fee schedule for every procedure and prescription drug, so that no provider or manufacturer could charge more than this schedule?  Lind suggests instant cost savings, with no rationing, no limiting access to care, and no “death panels.”

This proposal is similar to the Japanese health system, which is largely fee-for-service and private provider based, with easy access to hospitals and physicians.  The government sets the price for every medical procedure, profitability of categories of providers is monitored, and fees are reduced if a sector becomes too profitable (not that much different from US requirements regarding insurance company medical loss ratios; many insurers recently paid out refunds).  Japan boasts a long-lived and healthy population, with health care spending as a percentage of GDP increasing at a fraction of the increase in the United States.

Of course, such a bold proposal brings to mind dozens of questions regarding the impact of price controls.  In the short term, would acute care hospitals be forced to shut down?  Would older physicians simply close their practices?  Would aspiring physicians choose another profession?  With lower prices, would patients demand even more testing and prescription drugs, reducing or eliminating savings?  Would physicians and hospitals increase volume of services, perhaps with unnecessary procedures, to make up for lost revenue?  Would this be a windfall for health insurers?  Would premiums drop to the point that more Americans could afford health insurance? Would reduced costs translate into greater access to employer sponsored health insurance? Would it spur economic growth and jobs, allowing more people to access employer sponsored health insurance?

Let’s hear your thoughts.

 

2 Responses to Are Mandatory Price Controls the Answer to America’s Health Care Woes?

Pat Kelly says: October 8, 2012 at 10:15 am

we alreaday have price control for reimbursements what we need is price control for the medical device manufacturers. The cost of implants and medical devices has not been addressed. 50K for a pacemaker? really? $400 for a surgical stapler?
In many cases the device cost more that the surgeon gets paid.

Reply
Bob Hertz says: October 13, 2012 at 11:27 am

Micnael Lind is a fine writer, but on this subject he actually does not go far enough.

Price controls are only half the solution. You also need utilization controls.

Let me use a simple example. Say that last year an insurance company (or Medicare) paid $3000 for one million cataract surgeries. (total spending $3 billion)

Now we cut the price to $2500. Sounds like progress.

But doctors now do 1.3 million surgeries.

Total spending = $3,25 billion

This is why Medicare and Medicaid keep running out of money despite their price controls.

Reply

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