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RAND Study: Setting Hospital Prices Would Save More Than Increasing Competition or Price Transparency

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Among strategies to curb hospital prices among the commercially insured population in the U.S., direct price regulations such as setting rates are likely to achieve greater savings than other approaches like increasing competition or improving price transparency, according to a new RAND Corporation study.

But price regulations face the greatest political obstacles and historically have been strongly opposed by medical providers, according to the report.

The RAND study analyzed the impact of three policy options — regulating hospital prices, improving price transparency and increasing competition among hospitals — on hospital spending by employer-sponsored and individual market plans and their enrollees.

Using nationwide data from the federal Hospital Cost Report Information System, researchers explored key considerations for each strategy and estimated the potential impact on hospital prices and spending.

The authors estimate that price regulation could have the largest impact on hospital prices and spending but would likely face political challenges, while improving price transparency and competition could help reduce prices—but to a lesser extent than price regulation.

According to the analysis, setting prices for all commercial health care payers could reduce hospital spending by $61.9 billion to $236.6 billion annually if the rates were set as high as 150% to as low as 100% of the amounts paid by the federal Medicare program, a change that would cut overall national health spending by 1.7% to 6.5%.

Researchers estimate that improving health care price transparency could reduce U.S. spending by $8.7 billion to $26.6 billion per year. Meanwhile, increasing competition by decreasing hospital market concentration could reduce hospital spending by $6.2 billion to $68.9 billion annually, depending on the magnitude of the change and how sensitive hospital prices are to market concentration.

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