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RAND report finds regulating hospital prices would be the most effective way to reduce healthcare spending, but are the proposals viable?

Blog | Pricing

RAND report finds regulating hospital prices would be the most effective way to reduce healthcare spending, but are the proposals viable?

A new report on ways to control healthcare spending has drawn pushback from the American Hospital Association (AHA).

The RAND Corporation, an influential policy research firm, issued a report examining three approaches to reducing hospital prices as paid by commercial insurers. The options included:

  • Regulating prices
  • Improving price transparency
  • Increasing competition

The report states, “Regulating prices for all private plans, by either setting or capping prices, has the potential for a significant impact on hospital spending.”

If prices for all commercial payers were set between 100% and 150% of Medicare rates, hospital spending would be reduced by at least $61.9 billion per year, according to the report. That change would equate to a 1.7% reduction in national healthcare spending. Depending on the rate, the annual reduction could be as high as $236.6 billion (6.5%).

But tying commercial rates so closely to Medicare rates likely would not be sustainable for hospitals.

“Despite claims otherwise, it is widely acknowledged that Medicare and Medicaid — the two largest public programs — pay below the cost of delivering care,” AHA President and CEO Rick Pollack said in a written statement in response to the RAND report.

“Price-setting would only enrich commercial health insurers at the expense of innovations in care that truly benefit patients.”

Other options would have a lesser impact

The RAND report found that emphasizing hospital price transparency, as the Trump administration strived to do with rules that took effect Jan. 1, would affect healthcare spending but to a lesser degree compared with regulating prices.

The impact on spending would range from $8.7 billion to $26.6 billion depending on whether patients or employers are the driving force in acting on price information gleaned through transparency initiatives.

Compared with regulating prices, increasing competition among hospitals, even beyond historical standards, probably also would have a smaller impact. The spending reduction in that scenario would be between $6.2 billion and $68.9 billion depending on the standards used to ensure competition in markets, according to the report.

“Given how concentrated today's hospital markets are, policymakers would need to radically restructure hospital markets for prices to approach competitive levels,” the RAND authors wrote.

About the Author

Nick Hut

is a senior editor with HFMA, Westchester, Ill. (nhut@hfma.org).

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