Forks – Commentary by Aaron Katz

A fork in the road or a two-pronged fork?

Aaron Katz Photo credit: I-Tech

Aaron Katz
Lecturer, UW School of Public Health
Photo credit: I-Tech

English is a difficult language for those not born to it, in part because it has these words that can mean two very different things.  For example, “sanction” can mean to punish or permit or support, “oversight” can be to overlook something or to provide supervision (presumably paying attention), and “custom” means a standard practice or something tailored.  In case you wondered, such words are called auto-antonyms or contronyms.

So, “fork” – a point at which one has to chose Path A or Path B or, alternatively, that instrument whose multiple tines together makes eating more efficient.   I saw both means in some articles I read over the past week.  Path A can be seen in an October 2013 “Expert Voices” essay by James Robinson, an economist at UC-Berkeley.  He makes the case for “reference pricing” to stimulate more cost-conscious purchasing.  This model – see CalPERS and Safeway – requires as insurance sponsor to set prices for specific services, say MRIs, which it will pay on behalf of patients.  If the patient choses to receive the service from a provider that charges more, s/he has to pay the difference.

Reminds one of Alan Enthoven’s managed competition model of the late 1980s.

Robinson’s essay cites evidence that reference pricing has moved market shares as people chose providers who charged at or below that price.  In that way, he argues that empowered patient “purchasers” can counter the power of ever-more-consolidated providers, who tend to increase prices and spending.  A study by Rand’s Chapin White shows us Path B.  Published this month in Health Services Research, White found that Medicare’s effort to cut hospital prices has led to a drop in hospital discharges for – no, not older adults – for the nonelderly!  Looking at data from 1995 to 2009, the analysis indicates a 10% cut in Medicare hospital rates reduces hospital discharges among non-Medicare beneficiaries by 5%.  A spillover effect of Medicare’s market power, analogous – but opposite to – the spillover effect of the program in its first two decades; then, Medicare paid generously and helped to spur higher spending and use rates among everyone.  (By the way, White notes that Medicare prices during that 15-year period fell slightly in real terms.)

A fork in the road with two alternatives, the “consumer-driven” path or the monopsony power of government path.  Most Western industrialized countries rely on the latter, and their much lower levels of health care spending gives it some credence.  The Affordable Care Act faced this choice and said “yes” – a competition-based reform (e.g., health insurance “marketplaces”) that also looks to Medicare (Medicaid to a lesser extent) to drive price reductions and systems innovation.

In other words, “Let’s use a fork!”