Question: Could Government-Mandated Price Controls be More Effective than Obamacare?

by webadmin on August 30, 2013

DPS-thumb1Eduardo Porter of The New York Times writes about a hospital that is located in a poor, isolated region at the base of the Appalachians. We here at HCE have talked to many hospitals in this type of environment, and the struggles they face to deliver care are endless and monumental.

However, this particular hospital could have a greater impact on the delivery of care in our country than healthcare reform, Porter speculates.

Like many, if not most, hospitals today, Western Maryland Health Systems has one goal in mind: “as much as possible, keep people out of hospitals, where the cost of healthcare is highest.”

And they’re achieving this, Porter writes. Both hospital admissions and readmissions are down. In the case of admissions, they’re down 15 percent. Readmissions have dropped from 16 percent in 2011 to 9 percent. And the system is turning “an operating profit of $15 million on about $370 million in revenue.”

How is this hospital doing it? Porter wonders.

“…[T]his innovation was only possible because in Maryland, hospital fees are subject to government price controls.”

Price controls is a dirty phrase in our devout capitalist system. To mention it is to invoke nightmarish images of Karl Marx and suffering socialist-oppressed citizens.

But in Maryland, there is no denying that price controls are working to some extent. Unlike other states that experimented with price controls in the 1970s and later abandoned the concept, Maryland stuck with it.

“At a stroke, the controls turned hospitals into something like public utilities — with regulated prices and a low but stable profit,” Porter writes. “Four decades on, the state’s experience offers fairly solid evidence that the hospital-as-utility model can work.”

He notes that Maryland’s success strikes at the most controversial weakness of healthcare reform: its failure to provide “a direct means to rein in the cost of care.”

Not only did Western Maryland and other price-regulated hospitals in the state have the “slowest rise in costs per patient in the country” from 1977 until 2010, Porter continues, but the “costs are more evenly spread.”

He writes: “Before the advent of price controls, the cost per each patient admitted into a Maryland hospital exceeded the national average by 26 percent. In 2011, it was four percent lower.”

Furthermore: “In Maryland, Medicare and Medicaid get only a six-percent volume discount compared to private payers. And the sticker price markup over costs is only 33 percent. All hospitals contribute proportionately to a pot to cover uncompensated care — and this cost is incorporated into their regulated rates.”

Naturally, this leads to some of the cheapest health insurance rates in the United States, rates that will drop even lower with the institution of the HIEs.

Could such a program work nationwide? Porter wonders.

Possibly.

However, the price-control system isn’t perfect. There are several factors that are simply outside the government’s control. For one thing, Washington State tried a similar program, but it failed because the hospital industry refused to back it.

Second, Maryland struggles to manage its volume of care. Third, it has been difficult for the state to translate the price-control structure into its urban hospitals.

“Indeed, Maryland’s cost controls are an example of how difficult calibrating regulation could be,” Porter writes. “As Maryland’s hospitals have done a better job keeping healthier people out, they have ended up with sicker, more expensive patients, raising their unit cost. At hospitals like Western Maryland, a fixed budget means that each person kept out of the hospital automatically raises the cost of each patient in it.”

But, he adds, these problems “seem fixable,” and with the nation’s skyrocketing costs and already volatile reform legislation, we’d be doing ourselves a disservice if we didn’t experiment with some form of the program that has benefited Western Maryland so profoundly.

As healthcare executives, what are your thoughts on price control? Is Western Maryland an isolated case or is there something to the concept? What are other ways in which hospitals could rein in costs?

-by Pete Fernbaugh

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