Another look at all-payer rate-setting in Maryland

[Greenbeard]

Here's a great interview with Bob Murray, who's finishing up his last week (after 18 years) as chair of the Maryland Health Services Cost Review Commission, the body in charge of setting all-payer rates for hospitals in Maryland: Q&A: Trillion-Dollar Maryland Wisdom On Setting Hospital Prices.

Maryland, famously, is the only state that currently (they've had it for 40 years now) has an all-payer rate-setting system for their hospitals, meaning all payers in the state will pay the same amount for a service at a given hospital. Contrast that with other states, in which the price of a given service at a certain hospital will vary from payer to payer, depending on the delicate balance between the insurer's market share and the hospital's.

The results of Maryland's system are pretty well-known and usually shown visually: they've had one of the lowest growth rates in hospital costs of any state.

They've done it with the support of stakeholders in their hospital community, including the approval of Johns Hopkins, rated again this year as the best hospital in the United States.

Some parting words of wisdom:

Q: So now that you’re leaving, what can you say publicly that you could not have said before? I imagine that your 18 years have been packed with just incredible conflicts that eternally needed ironing out?

Yes, absolutely. I’m just going to repeat myself: We take some satisfaction I guess in playing the role of referee that can step in, that doesn’t have a political interest or doesn’t represent a special interest; to try to sort things out and figure out what’s in the best interest of the public. And we do that at various levels: incredibly detailed issues, middle-level issues and very macro policy issues. Everyone has a self-interest and that’s what makes this country great and the marketplace great. But you want to have some type of mechanism that makes this all work toward some common goals and steer those forces in that direction so that at the end of the day the public is better off.

That’s been our general philosophy that we’ve applied, and we’re small enough to be able to do that, and exercise judgment, and then try to be as fair as we possibly can.

Government has a role to try to create standards and uniformity and act as a referee. That’s one of my main messages. And particularly, now, to act as this countervailing force to market power.

Right now, in any given region, hospitals can act as natural monopolies, as “price setters.” That’s an anti-competitive dynamic. People say, ‘Oh, we’ll let the market work.’ Well, it doesn’t work. Let’s be practical about this. Given this dynamic there is a role for government, to push back, to be that countervailing force for the time being. But at the same time structure the system to be flexible enough to allow competition to work when it produces more effective results. We can’t think that government is always successful. There’s regulatory failure, too. Government moves slowly, sometimes, and is rigid. We’ve got to build a system that’s flexible and operates at that macro level and embodies the best of both approaches.

And I’d also emphasize the political independence: Try to wall off this entity as much as you possibly can. They can’t be in their own little world, they have to evolve with changes in the market and be able to respond to inquiries, but to insulate them from political pressure is very important. And then that idea of a forum for discussion and cooperative rule-making is very important. So people feel they have their voices heard.