Tips from gaining health

Another Look At An All Payer System For Hospitals

Why do different insurers pay different amounts for the same service?  While Medicaid and Medicare are notorious for their take-it-or-leave-it fee schedules, competing commercial insurers payment rates for vary considerably across providers, even within the same region.

Uwe Reinhardt tackles this mystery in a just-published article in Health Affairs.  Not only is this “price discrimination” untidy, says he, it’s also been unfairly credited as being evidence of “cost shifting.”

It turns out that there are some credible studies that show that as public payer fee schedules get squeezed, commercial insurers seem to pay more.  Yet, in order for a cause and effect to be present, that would mean that providers are not acting in their own economic self interest and are waiting on Medicare and Medicaid before bargaining with their local managed care plans. To Dr. Uwe, that seems suspect.  That would mean commercial insurers have little negotiating leverage which would also mean that the U.S. cannot rely on them to control costs.  Yikes.

Compounding this untidiness are the big swings in the costs of goods and services in an opaque market that seems better suited to upside price gouging and not downside discounting. This is not only hurting the uninsured, the dysfunction is now reaching into the pocketbooks of the middle class.  No wonder Americans are grumpy about the cost of health care.

Dr. Uwe’s suggestion? An “all payer” system.  Not to be confused with a “single payer” system involving some sort of Obamaesque Price Czar, all payers would negotiate prices with all providers in regional blocks across counties, regions or even states.

Some of the European countries use this approach and so, by the way, does the state of Maryland.  The role of government would presumably be limited to brokering a yearly Big Meeting between representatives of both camps; in fact, government could make sure all parties agree to prices that are indexed to the GDP.  The result?  Patients would benefit from an average price applied equally to all, insurers would know they’re paying their fair share and best of all, hospitals would get a fair price for their services.

The DMCB likes the approach but suspects that politicians would be tempted to meddle by showing favoritism.   It would per to see it implemented at the state level while the Feds are kept at arms length.  It should be limited to hospitals at first.  Depending on how things work out, it could be tested on a trial basis involving physicians, such as the Patient Centered Medical Home.