Move from Management to Insurance to End Payment Disparities

Rhode Island's health insurance commissioner, Christopher Koller, has released a report showing huge disparities in what health insurers pay local hospitals for the very same procedures. The reason is that members of the Care New England hospital group offer services not elsewhere available, so insurers have no choice but to include them, and the hospitals leverage those services for better payments throughout their organizations.

Note the way reporter Felice Freyer insinuates regulation as the strategy for resolution:

Koller’s report shines a flashlight beam into the murky world of hospital finance. Hospitals negotiate privately with insurers to establish how much they will be paid for each service. These talks are largely unregulated, and always private, so that no hospital knows exactly what its neighbor is being paid. All are forbidden by contract to reveal their rates.

Diving into the regulatory pool would only drive up rates. Whether government mandates forced insurers to pay above the rate that the market dictates, within its regulatory strictures, or one or more of the state's three insurers bow out, the cost will ultimately be borne by consumers.

The better approach would be to move away from a system that uses insurance as a healthcare management plan. If patients paid more directly for the services that they receive, the market would set prices based on those services, not on the leverage of hospital groups. That a hospital is the only one with a newborn intensive care unit matters less to an individual who needs heart surgery than it does to a large insurance company that must negotiate a full menu of services.