Advocates for Evidence-Based Health Policy Speakers
Engaging All Payers
Price discrimination in health care means each insurer pays a different amount for the same service. A prominent health policy expert suggests a move to an “all-payer” system as implemented in Germany, Switzerland, and Maryland.
United States health care payments are negotiated between individual payers and providers. Segmented market arrangements such as these determine the cost of health care by payers’ market power, allowing providers to leverage weaker payers into covering a disproportionate share of health care providers’ fixed costs. This concept is largely considered a form of price discrimination, which means different customers (insurers) pay a given seller (providers) different prices for the same good or service.
The specific notion for the shifting of provider costs from public to private insurers is termed cost shifting; this is often cited as a major reason for steep price differences in provided care. Specifically the cost shift theory often refers to slow growth of Medicare and Medicaid reimbursement as the primary reason for rapidly increasing costs for private insurance. One report by Milliman estimated the size of the cost shift from public to private payers in 2007 as $88.8 billion dollars. Of that, $51 billion was reportedly from hospitals ($34.8 billion from low Medicare payments and $16.2 billion attributed to Medicaid payments). The remaining $37.8 billion pointed to shifting from physicians to private insurers with $14.1 billion due to lower Medicare payments and $23.7 billion due to low Medicaid payments.
Uwe Reinhardt, the James Madison Professor of Political Economy at Princeton University and world-renowned health policy expert, recently proposed that the current price-discriminatory system be replaced over time by an all-payer system as a means to better control costs and ensure equitable payment. He referenced European models of all-payer systems in Switzerland and Germany where such systems have been implemented on a regional basis for various providers and pharmaceutical products. Closer to home, he described the Maryland all-payer system implemented in 1971 which allows rates to be set by the Maryland Health Services Cost Review Commission. The Commission sets prices and allows for differences in the cost structures at different facilities. However, once a rate is set for a particular service at a given hospital all patients and all-payers must pay on the basis of the set rate.
Reinhardt suggested that advantages of all-payer systems include: reducing the cost and administrative burden of tracking varying costs across different providers, constraining the overall annual growth of health spending so that it does not outpace overall economic growth, and the idea that prices paid would no longer be a function of the socioeconomic status of the patient as inevitably it is now in the United States. Instead, prices under an all-payer system would be the same for all patients, removing the incentive to refuse patients whose treatment would be judged to have a relatively low value solely because these patients are poor.
Reinhardt admitted that achievement of an all-payer system is much more easily proposed than accomplished. Implementation of such a program would require additional policy research addressing issues from the type of entity involved in the negotiating or setting of the all-payer rates, whether the decisions of that organization would be subject to approval by government, whether there would be an appeal mechanism, and to whom appeals should be made. Furthermore, questions concerning how macroeconomic constraints would bear on setting the rates and the political will necessary to employ such a health care overhaul remain substantial barriers to national adoption in the immediate future.
Commentary
Health care in the United States is less a system and more a loosely configured network of various payers and providers individually negotiating competitive rates for the same health services. The result is that no one knows the “real” cost of health care. Thus, it is no surprise when discussions on controlling health care costs yield no definitive answers. The real question for policy makers and stakeholders should be how cost savings between payers and providers will reach the patients. Current “market driven” efforts shift the burden of cost control from health insurance entities and attempt to convert patients into savvy consumers of health care. The end result allows patients to ration their own care based on costs that are vaguely transparent and hardly predictable.
An all-payer system adds a slight amount of transparency and predictability to the payer-provider relationship. It holds the potential to create a more patient friendly health system. An all-payer model may help contribute to a more competitive market approach as providers with fixed prices seek to increase patient demand (possibly by improving quality) and decrease cost (by improving efficiency). Additionally cost savings would be realized immediately through decreased administrative burden.
While those may be positive side effects of an all-payer system, there remains the potential, as with any new policy, for unintended consequences. System gaming, the overuse of more profitable procedures, the underuse of less profitable procedures, or the use of unnecessary procedures may increase as providers attempt to maximize profits. Furthermore, providers may shift visits away from patients with less profitable issues such as preventive care.
by
Patrick Fitzgerald, MPH