Reinhardt on cost shifting and all payer

For reasons not worth explaining, I have to write most posts in advance. After writing this one and inserting it in the queue, Uwe Reinhardt blogged on his paper. I recommend reading his post.

So, this is a week late, but still I want to highlight a few points from Uwe Reinhardt’s Health Affairs paper published last week. In it, he runs the argument from price discrimination/cost shifting to all payer rate setting. The dots, as he connects them, go through my recent cost shifting review paper. I’m grateful for the citation.

Reinhardt is a master at asking penetrating questions, the type I imagine might make private market advocates or the leadership of certain industries (usually insurers or hospitals) squirm. For example, citing health care inflation data from Oregon, he asks,

[W]hy did the ten largest private health insurers in that state […] not resist the steep price increases during 2005–09, in the midst of one of the deepest recessions befalling the United States since the Great Depression? This question is relevant to any strategy that relies heavily on private health insurers as agents of cost control.

Similarly, if hospitals can make up for public payment shortfalls by shifting costs to private insurers, it implies that those private insurers have very little bargaining leverage or market power. But,

if private insurers have insufficient market power with providers and therefore the cost-shift theory is valid, it raises the question to what extent the nation can rely on private health insurers as agents of cost control.

Noting that prices paid by insurers for various procedures are all over the map, Reinhardt raises another good question.

If the argument is that the private market sets prices for health care appropriately, and that government should adapt the prices it pays to those private-sector norms, then the question is how exactly one would determine these price norms, given the huge variation of prices for identical services within the private market.

Moving on to all-payer rate setting, Reinhardt ticks off the advantages. It would

  • “reduce the cost of the administratively complex current system.”
  • “make it possible to constrain the overall annual growth of health spending so that it does not outpace overall economic growth.” (This may be a bit of an oversell. That’s possible, but not guaranteed. It depends on the style of all payer and political will.)
  • make it so that “the perceived value of a health care provider’s work, signaled through prices paid, would no longer be a function of the socioeconomic status of the patient.”

Finally, as should not be surprising to those familiar with his writing, Reinhardt is not impressed with market-based proposals for health reform.

None of various proposed market-driven consumer-choice models, however, adequately addresses the uneven allocation of market power between payers and providers, especially hospitals, which appear to have kept private insurers relatively weak partners at the bargaining table.

There’s more. All in all, it’s a paper worth reading. Unfortunately, I’m unaware of an ungated version. There seems to be an ungated version. You can hear Reinhardt discuss his paper at the recent Health Affairs briefing. I don’t recall exactly where in the long program he speaks. It’s at least 2.5 hours into the nearly 4 hour program. You can just keep fast forwarding until you hear his German accent. Stick around, or fast forward, to the Q&A at the roughly 2’46” mark. I found it very entertaining, and not only because of his mention of my work. (H/t Brad F)

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