Where Maryland Gets Healthcare Right

Proving once again, that the first problem is not cost it's price

The Free State is expand an existing plan of price controls for healthcare:

The Obama administration is set to announce Friday an ambitious health-care experiment that will make Maryland a test case for whether aggressive government regulation of medical prices can dramatically cut health spending.

Under the experiment, Maryland will cap hospital spending and set prices — and, if all goes as planned, cut $330 million in federal spending. The new plan, which has been under negotiation for more than a year, could leave Maryland looking more like Germany and Switzerland, which aggressively regulate prices, than its neighboring states. And it could serve as a model - or cautionary tale - for other states looking to follow in its footsteps.

“You can put Maryland in the company of Massachusetts and perhaps Vermont as the three states furthest out in trying to invent a new future for cost accountability in health care spending,” added Harvard University’s John McDonough. “Success creates a model that other states will want to look at emulating. And failure means it’s an option more likely to be crossed off the list.”

For Maryland, the new rules build on past success. Since the mid-1970s, it has been the only state to set the prices that hospitals charge patients. Typically, hospitals negotiate with each health insurer individually, leading to disparate rates. In Maryland, all customers — whether a private insurance plan, public program or uninsured patient — pay the same price. Researchers estimate the system has saved $45 billion for consumers over four decades and prices have grown more slowly in the state.

What they are adding is changing the billing to reduce incentives to provide unnecessary services:

Under the old system, prices in Maryland couldn’t grow faster than the prices set by the Medicare program. But as the cost of health care rose rapidly in recent years, the state struggled to hit that target.

State officials also worried about the old system creating perverse incentives: The best way for a hospital to make money was to provide the highest volume of services, regardless of whether that care made patients healthier. That meant payers would simply sign checks for as many treatments as the hospitals recommended. The new system intends to end that revenue strategy by capping total spending.

“It’s essentially moving away from a system that is focused on volume to one that is focused on value,” says John M. Colmers, executive director of Maryland’s Health Services Cost Review Commission, which will oversee the effort.”

The Centers for Medicare and Medicaid Services approved Friday Maryland’s proposal to continue setting hospital prices while adding in a cap on all hospital spending. The state will limit hospital spending growth to 3.58 percent for the next five years, largely by giving each of the state’s 46 hospitals a firm budget to work within. That level of growth would be tied to the projected, overall growth of the state economy.

I'm not particularly excited about this second part. I just do not know enough about the healthcare market to know if it works, but if it provides an incentive for other states to implement price controls, this would be a good thing.

The free market is not, and will never be, the salvation of our healthcare system.  That is what the past 60 years has shown.