Description: Rate Regulation
Many
economists feel that market failure is inherent
and unavoidable in
health care. A
purely market-based
health care system will lead to socially
undesirable outcomes – people with
limited resources will not access services and
will become sick, hurting
themselves and infecting others. As a
result, the public sector plays a significant
role in health care.
The public sector plays a strong role
in
setting fees for the services that it buys.
The federal
government, through the Medicare program, and
state
governments generally through their Medicaid
programs have attempted to
restrain health care costs by limiting the
amount that they pay providers for
services. In 1980,
prospective rate
setting was a key policy tool used by more than
30 states to control rising
health care costs.
It was developed with
the explicit encouragement of the federal
government through two acts of
Congress in 1972 and 1983.
By the
mid-1990’s state rate setting almost
disappeared.
Example 1: MedPAC
Example 2: Maryland
Assumptions & Common Business Model
Many
healthcare providers feel that
publicly set rates do not provide them adequate
reimbursement.
Traditional
fee for service
reimbursement schemes have largely been
displaced due to managed care
arrangements which promise to lower costs
through providing cost-effective
care.
Costs have
continued to climb under
managed care arrangements but political forces
have effectively challenged a
return to rate regulation.
Health
providers and elected officials
generally favor a more market driven,
competitive approach to establishing
rates.
In the
current political environment,
public and private leaders have hoped that the
market would exercise control
that has yet to materialize. The
alternative to this approach is a very
difficult political discussion about
winners and losers in a regulated system.
The Maryland
experience, though an
aberration, is supported by both providers and
public officials because of
stability and predictability that the regulated
system providers.
It has kept
Tie to Specific Leverage Point
Transparency
across multiple pricing
and reimbursement strategies – A system with
regulated rates will enable the
various payers to have a clearer sense of what
a service will cost them and it
will allow the provider to know what they will
be reimbursed for their
services.
