The free market case for price caps

I want to go deeper on one think tank plan in particular, partially because it's been turned into actual legislation on the Hill — and also because both versions are coming from the political right.

How it works: The plan, originally developed by the Foundation for Research on Equal Opportunity, would cap payment rates for commercial payers at Medicare Advantage rates in "extremely concentrated hospital markets," with exemptions for rural hospitals.

• If hospitals in those markets didn't want to get paid MA rates — which generally are much lower than commercial rates — they could opt to break up instead.
• Rep. Jim Banks, who is now running for the Senate in Indiana (and whom no one would accuse of being too liberal), has a bill that incorporates this framework.

Between the lines: "The foundation of the idea is that the FTC is not inclined…to go after mergers that have already taken place and forcibly break up health systems. They're very worried about the disruption that would cause to health care," FREOPP president Avik Roy told me.

• His plan "is kind of like auto antitrust, because basically the hospital system will decide," he added.
• "But if you're going to be concentrated, then we have to create some sort of countervailing force to make sure that you're not exploiting your monopoly power."

I was curious how many hospital markets the Banks bill would apply to, so I did some very back-of-the-envelope math.

• Using the concentration threshold outlined in the legislation, I used this 2021 dataset from the the Health Care Cost Institute to see how many metro areas met that threshold.
• The answer: 51 of the 183 areas, or nearly 28%.

The bottom line: This is a really interesting example in which government intervention is seen as allowing market forces to work, not standing in the way of them.