Is this 125% price cap the solution to hospital charge variation?

Placing a cap on healthcare provider payments at 125 percent of Medicare reimbursement rates could prove an effective short-term solution to price variation, according to a Health Affairs blog post.

The blog post's authors — Jonathan Skinner, PhD, a professor at Dartmouth; Elliott Fisher, MD, director of the Dartmouth Institute for Health Policy and Clinical Practice; and James Weinstein, DO, president and CEO of Lebanon, N.H.-based Dartmouth-Hitchcock health system — write that limiting prices to 125 percent of what Medicare pays would eliminate the most extreme charge variations and protect consumers from excessive healthcare provider market power.

"This number reflects a tradeoff between the desire to keep prices low and the need to allow hospitals and doctors to offset at least some of the costs of the uninsured," Drs. Skinner, Fisher and Weinstein wrote.

In response to potential concerns about the price cap putting more financial pressure on hospitals, they wrote that "stratospheric charges to uninsured (or out-of-network insured) patients is not the way to cure the basic problem of inadequate public support for the poorest patients."

At the same time, they suggest reexamining Medicare reimbursement rates to align them with primary care and reward providers that perform preventive services that keep patients out of the hospital.

It's important to note that the hospital charges don't reflect what Medicare and health insurers actually pay. Medicare rates, which are based on set fee schedules, are typically much lower than the listed charges, and private health insurers also negotiate their own lower rates. However, price transparency advocates have argued the charges still matter because they represent the starting point for reduced rate negotiations, and uninsured patients can get charged the full listed amount.


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