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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