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Just Saying It’s So Doesn’t Make It So

February 15, 2011
11:35 am

Now that gasoline is over three dollars a gallon, I wince a little every time I fill up my car.  It would be nice to have the power to simply decree that gas prices be 50 cents lower, but I understand that my pocketbook preferences do not take precedence over basic marketplace factors that range from the cost of oil exploration to rising energy demand in China and India.

There is still an insistence on the part of some, though, that governments should set healthcare prices (more than is already the case in Medicare and Medicaid), regardless of actual cost of producing and delivering healthcare goods and services.

This issue arises because of a report from Boston’s National Public Radio affiliate, WBUR-FM, that the Massachusetts Governor may ask the state legislature for the authority to set the rates that hospitals can charge.  That authority would kick in if, after three years, hospitals are requesting increases of more than two percent.

This idea of government setting prices is, of course, neither new nor limited to the Bay State.  During the debate over health reform, proponents of a government-run health insurance option cited Medicare as a model of “efficiency” because it establishes the payment levels that physicians and hospitals can receive.  That’s fiat, not efficiency.    Similarly, there are constantly proposals bandied about to affix price ceilings to virtually every healthcare sector from insurers to pharmaceuticals to medical devices.  That’s also the problem with the Independent Payment Advisory Board, scheduled to be implemented as part of the Affordable Care Act.  It’s an entity empowered to slash healthcare spending without regard to achieving greater quality or value.

The problem with having government simply decree what any one sector may charge for its services is that this approach ignores the interrelationship between insurers, providers, manufacturers and consumers in determining the value of healthcare services.  It also undermines the ability of health system participants to provide greater value through innovation.

There’s no question that we do need to focus on improving healthcare’s affordability.  The way to do that, though, is through new, innovative health delivery mechanisms, a greater reliance on evidence-based medicine, a more intense focus on wellness and prevention and strengthening the ability of consumers to be discerning healthcare shoppers. 

For government to simply declare that certain prices must be lower may bring a measure of short-term relief, but there’s a price to be paid, whether it’s in the form of cost-shifting, reduced access, impaired quality or less innovation.  Just saying a cost is lower isn’t the same as actually making it lower through marketplace mechanisms or greater ingenuity.

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