Feb 18, 2021 - Health

Study indicates regulation the best way to lower hospital spending

Caitlin Owens

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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Study indicates regulation the best way to lower hospital spending

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