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.”