Feb 18, 2021 - Health

Study indicates regulation the best way to lower hospital spending

Illustration of a giant health plus on top of a pile of cash, the ground underneath is cracking
Illustration: Aïda Amer/Axios

Government regulations of the hospitals' rates is a much more effective way to reduce costs than relying on competition to do the job, according to a new report by the RAND Corp.

Why it matters: America's health care system is the most expensive in the world, and hospitals account for the largest portion of those costs.

  • The U.S. spends more on hospitals per capita than any other of the 36 countries that are in the Organization for Economic Co-operation and Development, and commercial insurance pays them much more than government programs do.

Details: The analysis compared the effects of direct rate regulation, increased price transparency and increased hospital competition.

  • Applying Medicare rates to commercial plans — one of the most aggressive policies modeled — would save $236.6 billion annually and cut overall national health spending by 6.5%. The effects are much smaller if higher rates are used or if they're only applied to a subset of health plans.
  • Increasing price transparency, which is required by law as of this year, could reduce U.S. spending by at least $8.7 billion per year.
  • And decreasing hospital market concentration — thus increasing competition — could reduce costs by at least $6.2 billion.

The bottom line: "Direct price regulation could have the largest impact on hospital spending, but this approach faces the biggest political challenges," said Jodi Liu, the study's lead author.

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