Best Way to Control Hospital Costs? Regulate Prices, New Study Says
Health Care

Best Way to Control Hospital Costs? Regulate Prices, New Study Says


Hospitals account for the largest single category of health care spending in the U.S., and policymakers have long debated the best way to bring their costs under control. According to a new report from the RAND Corporation, the best option may be the most obvious one: using government-imposed price regulations.

The RAND analysis examined three widely discussed options for controlling hospital costs: increased competition, increased price transparency and direct price regulation. The last option – which was operationalized by applying Medicare prices to all commercial payers – was by far the most effective, reducing spending by nearly $62 billion. Less aggressive price limits would produce smaller reductions, but price regulations remained the most effective approach.

Increased price transparency led to a reduction in spending of about $8.7 billion in the analysis, while increased competition in the form of reduced market concentration produced about $6.2 billion in savings.

The bottom line: RAND says that federal price limits on hospitals would produce the largest reductions in spending, but it also acknowledges — and underplays — the obvious hurdles to such an approach, noting that it “would likely face political challenges.”