Game Changer: All-Payer Rate Setting

How can we reduce health care costs and cover more Americans? What if I told you there is a simple idea that could make this happen and not require any other major changes to our current health care system?

There’s an easy way to make health insurance more affordable and its one that’s already been tried.

Back in the 1970’s, a handful of states enacted all-payer rates, where all private and public insurers would negotiate set rates. This allowed the insurers and public plans to have bargaining power that comes with the clout of huge numbers. A panel of insurers (in Maryland’s example) sets the price for each procedure or treatment provided.

Bargaining clout means cheaper prices. This is why people often speak highly of the Veterans Administration, or VA, prescription drug prices, which are about half as much as private insurance prices. The government sets the rates in Singapore for all public households and steps in if private prices aren’t competitive. Several other countries, like Germany and France, use variations of all-payer rate setting to keep the health care affordable.

The two major drawbacks to all-payer are a significant number of people who will be laid off because the complex billing apparatus in private insurance would go away, and patients may have longer wait times to see providers. These are big political costs that will have to be addressed.

A third drawback, as was discussed in this article, is hospitals may have an incentive to admit people more often and even repeatedly in order to bill again for service. However, Maryland has found a way to make all-payer work.

During O’Malley’s tenure, Maryland instituted a complementary reform to all-payer. State hospitals had reacted to price controls over time by increasing the admission rate, maximizing profits through volume. So in 2014, Maryland revamped the system by setting a global budget for hospitals, delivering a fixed amount of money every year, adjusted for local demographics. This five-year demonstration project is in its experimental stages, but every hospital in the state signed up for the voluntary program within six months, and it has already saved more than $100 million for Medicare in the first year, with hospital readmission rates below the national average, according to data recently published in the New England Journal of Medicine.

The reality is though that hospitals will find a way around any legislation or rules if it exists. We can expect that, and we should expect the policy makers to have ways to address whatever loopholes the hospitals dream up.

But the benefits for people with complicated medical issues are easy to see.

One, we no longer have to worry about whether or not a provider takes our insurance. The only reason they would elect not to take an insurance policy or public plan would be due to decreased ability to bill. If we all pay the same rate, they wouldn’t have to worry about, say, Medicaid patients only being reimbursed at half the reasonable rate for care. Now, they may decide to take no insurance and everyone pays out of pocket, but if they are taking insurance, theoretically they should accept it all. This means if one doctor gives you a list of recommended providers, you wouldn’t have to call through the list until you found one who took your insurance. They all should.

Two, this would mean that we could price shop for insurance more easily, because it would be comparing apples to apples. The plans should be relatively uniform in what they cover and the question would be the cost of a company’s premium and deductible.

Three, doctors and therapists paid by Medicaid (and to a lesser extent, Medicare) wouldn’t have to convince state and national legislators to increase their reimbursement rates every year. I know that minimum wage legislation has actually been a problem for therapists contracted out by regional centers, for therapies like speech or physical, because of the rates they are allowed to be paid through Medicaid.  These are now price points that could be changed nationwide all at once if necessary when minimum wage or other related laws are changed.

The most incredible part is that this is not a new idea.

I first heard about all-payer rate setting on a Weeds podcast released on September 8, where host Sarah Kliff interviewed Dr. Atul Gawande. This was before the Graham-Cassidy block repeal bill had become the it thing in the Senate. Just two weeks ago when we thought the Senate would be having bipartisan hearings. How naive we were.

During the course of the conversation, Dr. Gawande asked Kliff her opinion on the best elements of international health systems and she brought up the all-payer rate setting as an idea she supported. I was able to quickly find an article she wrote about it back in 2015.

Kliff’ article was so good it was quoted as part of a policy paper on all-payer rate setting. The basics of all-payer rate setting are explained below.

The United States is unique among countries with health care systems that rely primarily on private insurance companies because there are generally no regulations that mandate a standard fee schedule for health care services. The prevalence of multiple private and public insurers is known as a multi-payer system. Other countries that have multiple payers set prices unilaterally, as is the case in Japan, or through negotiations between payers and providers, as is the case in Germany. The outcome is a uniform set of prices that applies to all payers within a single hospital. This framework is known as all-payer rate setting.

This paper explains how all-payer rate setting regulation can mitigate several problems plaguing the US health care system. Examples include cost shifting, price discrimination, and provider market leverage. The paper then analyzes how these problems negatively affect the US health care system. Finally, the bene ts of all-payer rate setting are explained, followed by the downsides (or tradeoffs) of such a system.

I hate to use this term because it is played out, but this idea is a game changer. Business interests can reduce health care costs and keep private insurers. Liberals get increased affordability and access to care. And people who want to see the American health care system improved, like me, are happy on all those counts.