By Sally C. Pipes
California lawmakers believe they’ve found an ingenious way to make health care more affordable — just legislate lower prices.
That’s effectively what AB 3087, which was introduced by San Jose Democrat Ash Kalra in the Assembly in March, would do. The bill would direct a panel of nine experts to set prices for every medical service in the state.
Proponents of these price controls claim they’ll save billions of dollars. But doctors and hospitals would respond to the scheme by reducing the amount and level of care they’re willing to provide, shutting down, or leaving the state altogether.
Wonks call this setup “all-payer,” because all private payers — whether they’re employers, people buying coverage from Covered California, or patients paying out of pocket — pay the same, state-mandated rates. The bill calls for initially basing prices off of Medicare‘s rates, which are lower than those private insurers pay.
AB 3087 doesn’t represent a complete government takeover of the healthcare system. After all, private insurers would continue to pay their beneficiaries’ bills.
But it effectively turns insurers into wards of the state. Eventually, lawmakers will be tempted to eliminate insurance-company middlemen — who are just paying prices set by the state anyway — and become the single payer for care.
Advocates of all-payer believe that fixed reimbursement rates will prevent hospitals and doctors from earning excessive profits and force them to provide more cost-effective care.
But doctors and hospitals are far more likely to react to these statewide price controls by providing less care.
Payments from Medicare already fail to cover the costs hospitals and doctors bear treating the program’s beneficiaries. In 2016, hospitals only received 87 cents for every dollar they spent caring for Medicare patients. That translates to a nationwide underpayment of nearly $49 billion.
Extending Medicare-style payment rates to private insurance would immediately push doctors’ and hospitals’ finances into the red. They’d have to respond by cutting their own costs — reducing hours, seeing fewer patients, laying off support staff, or declining to provide pricey services, even if clinically valuable.
Such rationing could grow worse if state officials pair all-payer’s price controls with “global budgets” — that is, caps on what the state will spend on health care overall. AB 3087 would set the stage for these caps by tasking its nine-person commission with tracking state health expenditures and setting goals for future spending levels.
Researchers from the Petris Center at UC Berkeley have floated global budgets as a means of reducing healthcare spending to fund a state-level push for universal coverage. In a March report, they estimated that such budgets could reduce health spending in California by $39 billion over the next five years.
Canada and the United Kingdom use global budgets to hold down spending. If those budgets are insufficient, patients just have to wait.
In 2017, Canadian patients faced a median wait time of 21.2 weeks to receive specialist treatment after receiving a referral from their general practitioner. That’s more than twice as long as the median wait in 1993.
The United Kingdom’s National Health Service is no better. In January alone, more than 81,000 patients spent at least four hours on stretchers in hospital hallways and corridors waiting for beds. At least 1,000 languished for more than 12 hours.
The NHS flat-out denies some requests for care. Bodie McNulty, a 2-year-old cancer patient, was denied surgery this spring after doctors determined that her tumor was 2 millimeters too large to qualify for a lifesaving procedure. Her parents will have to take her to Germany for treatment — and pay for it themselves.
Granting nine sages the power to set the price of every medical procedure in California sounds like something straight out of the Soviet Union. The Golden State’s voters should let their leaders know that they don’t want an unelected politburo rationing their health care.
Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book, The False Promise of Single-Payer Health Care, was published this spring.