Maryland as guinea pig for health care price controls

Sarah Kliff reports:

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.

I am glad there is an experiment, but I’m also glad I live in Virginia.  And there is of course a problem with drawing inferences from such experiments.  A small area can institute price controls without much discouraging health care innovation, but perhaps the larger area cannot.