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The perils of health care price controls

Can market-based solutions that are so familiar to the business world really work in health care?

This is hardly a new question. But it’s talked about a lot in Massachusetts these days as the Legislature inches toward a new attempt to manage growing medical costs.

Next week, the House is expected to debate a bill that would impose a price-control system on one of the state economy’s most important industries, including a kind of Robin Hood tax that would take from some wealthy health care providers and redistribute money to struggling hospitals.

The Senate has already passed a milder measure.

And the governor has his own ideas on the subject and clearly considers some action on tackling health care expenses to be an important legacy issue.


The people with the most to lose — those who run famous-name hospitals and medical systems with serious clout — want to water down or at the least avoid the toughest parts of the House proposal.

Some outsiders, particularly Mike Widmer of the Massachusetts Taxpayers Foundation, generally agree.

Their argument: Slow down, the market is already working!

They say a fundamentally new way of paying for care that emphasizes results over volume is already blunting the trajectory of costs. That concept — along with new insurance products that nudge the market toward cost-conscious practices — make up the core of their market-based solution.

“The market is driving dramatic change,” Widmer says. “What I’ve been warning against is a heavily prescriptive approach to health cost control, which would undercut the progress that has been made.”

Critics — including some medical providers and insurers — think the idea of market-based strategies solving any health care economic problem is complete bunk. In fact, they insist the most powerful providers, such as Partners HealthCare, distort the market and are principally responsible for the broad cost problem (a view shared by Attorney General Martha Coakley). Those providers, the argument goes, charge much more simply because they can, and that advantage is squeezing everyone else.


So lawmakers and the governor need to identify the specific purpose for passing a new price-control system now. Is it to rebalance pricing power across the health care industry? Should it redistribute money and other assets from the rich to the poor in the medical world?

In a word, no. The purpose of a new health care cost-control law should be simply to control the future growth of medical costs in the best way possible.

The Senate’s version of reform would do the better job reaching for that goal. It sets limits on medical spending that are pegged to the growth of the economy, but gives providers and insurers more leeway to figure out how stay within the financial lines.

The House version would limit spending growth to a little less than that of the state economy. Those providers that charge high prices but do not provide above-average care would pay a tax, to be redistributed to weaker hospitals. However it’s done, it would create a very involved regulatory role for the government.

I don’t know how effective the private sector’s own strategies for containing costs will prove to be in years ahead. I’m not even sure if they contributed much to our recent stretch of small increases in premiums. (A serious recession that helped slow the use of services is a big part of that equation.) But hospitals and other providers are changing the way they practice, with a focus on overall expenses.


So what happens if they don’t produce the results everyone would like to see? The Senate response contains some checks, but overall doesn’t have much muscle. On the other hand, adopting the price-control approach advocated by the House would immediately inject the state into a complex payment system in an aggressive and dangerous way.

“I don’t believe government can get it right,” says a wary Widmer.

Neither do I.

The Legislature doesn’t need to have tough controls ready now if prices spiral upward again; it can always come back later. For now, some of the industry’s market-based ideas may actually limit price increases and deserve a chance. There will be plenty of opportunities — and the political will — to inflict much stricter cost controls on health care if they fail to work.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.