Health Care

Policy Options for Reducing Hospital Prices Paid by Private Health Plans

Hospital spending—the largest health spending category in the United States—accounts for one-third of national health expenditures. In 2018, U.S. hospital spending totaled $1.2 trillion. In a new RAND report, authors analyze the effects on spending of three policy options:

Among these strategies to curb hospital prices, direct price regulations, such as setting rates, are likely to achieve greater savings than other approaches such as increasing competition or improving price transparency. Setting prices for all commercial health care payers could reduce hospital spending by $61.9 billion to $236.6 billion annually if the rates were set at 100 percent to 150 percent of the amounts paid by the federal Medicare program. Such a change would reduce overall national health spending by 1.7 percent to 6.5 percent, according to the analysis.

Improving health care price transparency could reduce U.S. spending by $8.7 billion to $26.6 billion per year, depending on the effectiveness of the price transparency initiatives.

Meanwhile, the effects of increasing competition by decreasing hospital market concentration range more widely. Reduced hospital market concentration could reduce hospital spending by $6.2 billion to $68.9 billion annually, depending on the magnitude of the change and how sensitive hospital prices are to market concentration.

The report provides a list of policy scenarios to help policymakers understand how key design choices or stakeholder responses might affect the magnitude of the savings produced by any given policy.

Read the report »