• Is all-payer in our future?

    In his latest column, Steven Pearlstein all but predicts all-payer rate setting is in our future,

    Here’s the dilemma: The only way for the health-care industry to move toward accountable care is to further accelerate a process of consolidation that has already reduced competition and increased market power. Hospitals are once again busily buying up physician practices and outside laboratories that used to compete with them, incorporating them into their “systems.” And independent physicians who used to compete with each other are quickly merging into multi-specialty practices, offering a full range of services to large blocs of patients for fixed annual fees – an arrangement known as “capitation.” […]

    I doubt there is an easy way to resolve this policy conflict. For the next few years, hospitals, physician groups and insurers probably need some latitude to experiment. At the same time, it may be necessary to exclude from those early experiments the hospital chains and physician groups that already have achieved market power and are apt to try to leverage it to further advantage.

    Moreover, to the degree that we let providers collaborate rather than compete against each other, we also may have to find new “all-payer” mechanisms, as they are called, that would allow insurers to collectively negotiate rates with hospital chains and accountable-care organizations. Market power versus market power. […]

    [G]overnment may be required to step in with more direct regulation and competition management than traditional anti-trust rules now provide.

    Other than single-payer, an all-payer regime is the only solution I’ve heard suggested for the provider market power problems that anticipation of ACOs seems to be exacerbating. Of course, even all-payer only resolves some of the problems in the system. As I wrote in a summary of all-payer schemes,

    One should not be too optimistic about what an all-payer system can do. It’s principally a system for purging price discrimination from the system, which would also eliminate cost shifting, to the extent it exists. Beyond that it would aid in the goal of price transparency, a necessary condition for a well- functioning market, and it would enormously simplify billing and reimbursement. All good stuff.

    But will all-payer bend the cost curve? I think one can’t be certain without pinning down the details. With prices that are administered in some fashion, the curve can be bent by fiat. Under a competitive model, the curve does whatever the market allows. As I like to say, “The market does what the market is.”

    Finally, since price discrimination currently exists between public and private payers–the former pay far less than the later, per admission or service–movement to an all-payer system means higher prices for Medicare and Medicaid. Isn’t that a problem for federal and state budgets? That’s got to be addressed before policymakers can really get behind this idea.

    A very heavy lift.

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    • For the 4% of WaPo readers who check out Pearlstein’s column today, they are getting what many of us want from the press–some healthy and smart commentary. Whether you agree with all his thoughts does not matter, as he is putting the right tone front and center. It is a nice change from the usual healthcare drivel (Krugman could not have written this unfortunately, although, obviously, he is more than capable).

      OK, my question.

      “an all-payer system means higher prices for Medicare and Medicaid”

      Could you envision an all payer conversion where in year one, rates are set and Mcare is -5%, year two -4%, etc. At some point there is parity and adjustment in wage deductions and changes in trust fund occur to equilibrate payouts by CM?

      Brad.

      • @Brad F – Of course! There are an infinity of ways to craft a system that evolves toward one of the all-payer variants. We’re light years from any of them because all-payer is so darn close to single-payer. But, frankly, I think all-payer is, ultimately, the only thing that can save the insurance industry from single-payer. It’s a reasonable compromise and it does solve some problems.

    • The politics of all-payer would be interesting. Seems like it would be pretty easy to attack, much as single payer. I dont think most people have an intuitive grasp of the idea of market power as it pertains to medicine. Most people still seem to think that we need more insurance companies for more competition.

      Steve

      • @steve – I think the way to get there, if one wanted to, is by showing there are real problems created by the level of price variation. Then, regulations might be adopted to keep prices within certain bands. Maybe they’d be gradually tightened over time until, one day, we have one price independent of payer.

        So, what are the problems with price variation? It could be access problems for public payers if their prices are so far below private ones. It could be equity problems if prices for plans in one market are consistently a lot different than those in another (exchange vs. large group?).

        None of this makes me think it’d be easy. It won’t. I’m just speculating on what might motivate policymakers to try. Maybe it’ll happen in Massachusetts first (or again, as I think they once had some kind of all-payer system; I know Maryland has one).

    • Hmm, that makes me think of Ed Rendell. Non sequitur? Not really, I think, because your comment on price variation tickled some memory cells. When Rendell was mayor of Philadelphia he needed to tackle the issue of city workers salaries. Difficult to do in Philadelphia, and the workers were union protected. What happened was that the Inquirer, reportedly with nudging from Rendell’s office, published what it cost and how many workers it took to change a single light bulb at the airport. IIRC, it took about 4 workers and cost lots. People had no idea that was the way things were done. The public outcry was huge and city workers really could not defend it.

      Maybe one way to get things moving would be to spotlight the huge variability in prices from place to place. Couple that with outcomes, nd maybe you create the political climate to change.

      Steve

    • LOL. There is nothing new under the sun.

      Steve