Half-measures won't work for healthcare cost controls


If recent reports are to be believed, Maryland hospitals have achieved something of a financial miracle. Leaders there report that rate-setting by the state has actually helped hospitals achieve a modest but stable margin of about 2 to 3 percent year after year, which is generally considered to be a decent number.

However, hospitals have been forced to make a very significant change in their strategy. Unlike their peers in other states, Maryland hospitals can't charge private health plans more than they charge government plans. In other words, cost-shifting is dead.

Now, for some policymakers familiar with Maryland's successes, the question is how to achieve a similar effect on the health system nationwide. Some public health experts seem to think that creating an independent rate-setting commission for Medicare (probably by bulking up MedPAC into a rulemaking body) can get the job done.

The thing is--and this is amazing to me--they're missing an extremely obvious point. If Maryland's model is any indication, setting rates is only part of the puzzle. Doing something to normalize the relationship between competing health plans and providers seems to be equally important. (I'd be interested to see studies that actually demonstrate this statistically, but for the moment let's assume anecdotal evidence is pointing in the right direction.)

If Maryland has actually stumbled upon something great, my guess is that health insurance exchanges--which may also limit the differences between coverage options--are more likely to have the national impact the Administration hopes to achieve. So the Medicare pricing commission might be something of a sideshow.

Sure, everyone wants to slash the billions the country spends on Medicare each year down to a reasonable number, but as big as the Medicare problem is, it's only part of larger picture. I say, let's give models like the Maryland rate-setting scheme a more thorough and nuanced analysis before we decide they're some sort of cure-all. Sure, having a state largely populated by profitable hospitals is intriguing, but let's not jump the gun. - Anne

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