Policy Proposals

A Proposal to Cap Provider Prices and Price Growth in the Commercial Health-Care Market

March 10, 2020
Health Care

The Problem

The United States spends a larger share of its GDP on health care than any other advanced economy. The high private sector health-care spending in the United States relative to that of other economies is driven largely by higher prices. However, there is scant evidence that high U.S. provider prices reflect better quality of care. Because market forces have not yielded competitive commercial provider prices, the authors believe policy intervention is necessary.

The Proposal

Although the United States will likely continue to rely on markets to allocate most health-care resources, market competition has not been sufficient to control commercial provider prices. In this proposal, Michael Chernew, Leemore Dafny, and Maximilian Pany discuss how price regulations could be used to constrain commercial provider prices in an efficient manner. They recommend a three-pronged approach that includes (1) market- and service-specific price caps that apply directly to only the very top of the commercial price distribution; (2) service-, insurer-, and provider-specific price growth caps that constrain price inflation; and (3) flexible oversight by state or federal authorities to address potential evasion.