The Federal government has just approved Maryland’s new attempt to bring down health care prices with a cap on hospital spending. Since the 1970s, Maryland has been setting prices for procedures (it is the only state to do so), but controlling costs through bureaucratic fiat isn’t as simple as it might seem. The policy has had some success, but hospitals were able to respond to strict caps on price per procedure by doing more procedures, and readmission rates in Maryland are also above the national average at some hospitals. The new cap on hospital spending is designed to eliminate that workaround, as Wonkblog reports:
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. […]State officials hope that the firm budget — combined with the state’s pre-existing power to dictate hospital prices — will put downward pressure on health spending, forcing hospitals to spend their limited dollars on the most cost-effective health care
Color us skeptical. If the first policy produced perverse incentives for hospitals fixed on the bottom line, the new one will produce all sorts of unexpected costs as well—perhaps, for example, doctors leaving the state to practice where they can make more money.But even if this experiment does succeed in holding down costs without producing any particularly bad side-effects, the state’s health-care system will be cheaper only relative to other states. The truth is that rate-setting and spending caps are superficial band-aid solutions that can’t get unsustainable costs under control in the long-term. We can’t just leave standard medical practice as it is and impose caps from on high. We need to change the very way medical care is delivered.