Cap on hospital rates carries bigger savings reward than price transparency, study finds

Setting hospital prices for commercial payers could achieve greater savings than other strategies like price transparency and heightened competition to curb hospital prices, according to a study published Feb. 18 by nonprofit research firm Rand Corp.

For the study, researchers analyzed data from the federal Hospital Cost Report Information System to explore considerations for each strategy and its potential impact on hospital prices and spending. 

Researchers found that setting prices for commercial health plans could cut hospital spending by $61.9 billion to $236.6 billion per year, depending on whether the rates were set at 150 percent the amount Medicare pays or 100 percent of Medicare rates. 

In contrast, researchers estimate that price transparency efforts could reduce healthcare spending by $8.7 billion to $26.6 billion per year, and increasing competition by decreasing hospital concentration could reduce spending by $6.2 billion to $68.9 billion, depending on how sensitive hospital prices are to market concentration. 

"Improving markets through increased price transparency and competition could help reduce prices, but would not reduce hospital spending to the extent that aggressively regulating prices could," said Jodi Liu, PhD, the study's lead author and policy researcher at Rand. "Direct price regulation could have the largest impact on hospital spending, but this approach faces the biggest political challenges."

American Hosptial Association CEO Rick Pollack said the study doesn't paint the full picture of what is causing the increase in hosptial spending in the U.S.

"Rand ignores the unique role of hospitals and health systems and dismisses rising costs and market concentration in the commercial health insurance industry, which is earning record profits during the public health emergency while spending less on actual care," Mr. Pollack said.

Mr. Pollack added that Rand "continues to regurgitate older and flawed studies, which may be why they land on a poorly-reasoned proposal to have the government regulate prices. Despite claims otherwise, it is widely acknowledged that Medicare and Medicaid — the two largest public programs — pay below the cost of delivering care. Price-setting would only enrich commercial health insurers at the expense of innovations in care that truly benefit patients."

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