RAND just released a new study by Jody L. Liu confirming what multiple other studies have found: If the federal government were to put a cap on hospital prices, we could save tens of billions of dollars a year in health care spending. Two other proposals to rein in hospital prices, making hospital prices publicly available and promoting competition among hospitals, would not save anywhere near that much money. What will it take for Congress to cap hospital prices?
I bet you know that the American Hospital Association was not happy with the RAND report. It points its finger at for-profit insurers. But, as much as insurers are responsible for not being willing or able to rein in hospital prices and driving up health care costs, it is the hospitals that set the prices.
In 2018, the US spent $1.2 trillion on hospital costs. Forty percent of total health care spending went to hospitals. If Congress regulated hospital prices so that everyone benefited from Medicare rates, savings could be as high as $236 billion a year. With hospital prices set at 150 percent of Medicare rates, savings would be $61.9 billion a year.
States could take on regulating hospital prices, but, in the last several decades, only one state has been willing or able to do so in a meaningful way. Only Maryland regulates hospital prices.
RAND does find some savings from hospital price transparency. It estimates that prices could come down by as much as $26.6 billion a year. And, it further finds that increased hospital competition–something at least as hard to achieve as federal price regulation and likely harder–could generate savings of between $6.2 and $68.9 billion a year.
We need to keep reminding our members of Congress that health care will never be affordable if Congress does not regulate hospital and drug prices. Subsidies will never be high enough. And, pharmaceutical companies and hospitals will keep raising prices as long as they are allowed to do so.
Yes, regulating prices might lead some hospitals to fold. But, our current free-f0r-all system has led many critical rural and other hospitals to shut their doors. Congress has the power to invest in hospitals where needed, as it has been doing throughout the pandemic, and it would be empowered to do so at any time if it regulated hospital prices.
And, yes, regulating prices might lead drug companies to limit their research. But, a lot of their research goes to maximizing their profits, not to discovering new important treatments. If prices were regulated, Congress could use the savings to target investments to needed research.
You can read a JustCare post explaining why competition does not bring down hospital prices here. And, this post discusses a RAND study that looks at hospital prices for corporate health insurers as compared with Medicare. One question for Congress is whether it wants to have hospitals suing patients for the cost of their care that insurance does not cover. Another question is whether it thinks that the wildly varying hospital prices even within a community should be addressed to protect Americans.
Here’s more from Just Care:
- Hospital prices out of control, competition not working
- Hospital price transparency won’t make health care affordable
- Coronavirus: Medicare covers hospital care at home
- Hospital care: Three major inequities
- Coronavirus: What to do before you leave the hospital
