Two leading health law and policy experts conclude that it’s time for serious consideration of state rate setting to control U.S. health expenditures, according to an issue brief published today by David Frankford, Professor of Law at Rutgers Law School, and Sara Rosenbaum, Harold and Jane Hirsh Professor of Health Law and Policy at Milken Institute School of Public Health at the George Washington University. The paper concludes that our current market-based system is failing to slow the growth of health care expenditures. Frankford and Rosenbaum go on to say that rate setting, which has a strong track record in the United States and abroad, is a promising solution.

“One can reasonably conclude that our decades-long experiment with using markets to control spending has failed,” the authors say. “It is time to consider seriously the mechanism used by other nations to control expenditures. That mechanism is rate setting.”

The authors point out that U.S. health care expenditures are much higher than other developed nations and nearly 50 percent higher than those of the next highest, wealthy nation. And despite a brief respite following the Great Recession, health care spending in the U.S. is rising and analysts expect that trend to continue.

Market forces alone are ineffective for many reasons, according to Frankford and Rosenbaum. For one, most health care services are extremely complex, and consumers need experts to help them decide on the services they need. In addition, healthcare providers and insurers can in many or most markets dictate prices. Nor are Medicare payment controls effective by themselves, since the prices set by Medicare are limited to the Medicare market.

Frankford and Rosenbaum argue that properly-designed rate setting has worked well in states like Maryland—and in countries around the world. They go on to point out that rate setting controls prices and prevents expenditures from rising, due to the use of a greater number of services. Finally, rate setting—when done properly—can include expert advice that can control spending. All of that can be accomplished without sacrificing the quality of health care services, the authors say.

Additional information about the brief is available at http://healthaffairs.org/blog/2017/03/20/taming-health-care-spending-could-state-rate-setting-work/

At Rutgers, Professor Frankford teaches courses and seminars on antitrust, bioethics, health care law, health care fraud, and health care transaction. Professor Rosenbaum teaches health services and law, health reform and law, and health policy and the regulatory process at George Washington University’s Milken Institute School of Public Health and Law School. They are also co-authors of the textbook, Law and the American Health Care System.

Support for this issue brief, “Taming Healthcare Spending: Could State Rate Setting Work?” was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the Foundation.