Editing Openai/692cb885-da9c-8002-9696-e985fae204bd (section)

===== Federal Policy Options for Price Containment =====
* Establish All-Payer or Medicare-Based Rate Setting: A bold federal approach would be to regulate prices for hospital and physician services across all payers, for example by capping commercial payment rates at a specified percentage of Medicare rates. Medicare prices are often 40–50% lower than private insurance rates for the same services. If commercial plans had paid Medicare-equivalent rates for all services, U.S. health spending for the privately insured would have been '''$352 billion (roughly 35%) lower in 2021'''kff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=quality%E2%80%94key%20considerations%20for%20any%20proposal,margin%20services%20or%20care|publisher=kff.org|access-date=2025-11-30}}</ref>. This indicates enormous savings potential from all-payer rate setting or global budgets. However, cutting commercial prices to Medicare levels would deeply impact provider revenues (average hospital revenue would fall ~35%kff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=quality%E2%80%94key%20considerations%20for%20any%20proposal,margin%20services%20or%20care|publisher=kff.org|access-date=2025-11-30}}</ref>), so more gradual or moderated approaches are discussed. One option is setting uniform rates as a multiple of Medicare (e.g. 150% or 200% of Medicare prices) to preserve margins while reining in extremes. Policymakers could also target rate regulation to highly consolidated markets or high-priced providers firstkff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=Another%20consideration%20for%20policymakers%20is,due%20to%20low%20population%20density|publisher=kff.org|access-date=2025-11-30}}</ref>kff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=Decisions%20about%20whether%20to%20target,blunt%20any%20adverse%20effects%20on|publisher=kff.org|access-date=2025-11-30}}</ref>. Adopting Maryland’s model nationally is another idea: Maryland is unique in operating an all-payer hospital rate system with global budgets (annual spending caps per hospital) which has slowed its cost growth. Vermont’s recent reforms (discussed below) also point toward all-payer global budgeting as a future strategymilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=The%20reference,implemented%20by%20Maryland%20in%202014|publisher=milbank.org|access-date=2025-11-30}}</ref>.
* Implement Broad '''Price Caps''' or Reference Pricing: Rather than fixing exact rates, the federal government could impose price ceilings on what providers can charge. For example, capping out-of-network hospital or physician charges at a reasonable multiple of Medicare or average in-network prices would protect patients and also pressure in-network rates downwardkff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=Price%20caps%20could%20also%20be,of|publisher=kff.org|access-date=2025-11-30}}</ref>kff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=capping%20out,network%20prices%20alone%20may%20not|publisher=kff.org|access-date=2025-11-30}}</ref>. Research shows that when out-of-network prices are capped (as in Medicare Advantage, where the default is Medicare’s rate), negotiated in-network prices tend to gravitate closer to that benchmarkkff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=closer%20to%20the%20out,network%20prices%20nearly%20as%20much|publisher=kff.org|access-date=2025-11-30}}</ref>. Policymakers could also cap in-network prices for certain high-cost procedures or services, or overall price-growth caps tied to inflation. Reference pricing is a related strategy: a payer (or government program) sets a maximum contribution for a service, often based on a reference (like median market price or an international price index), and providers charging above that reference must justify or patients pay the difference. At the federal level, prescription drug pricing is seeing a form of reference-based negotiation. The Inflation Reduction Act of 2022 empowered Medicare to negotiate prices on select high-cost drugs. In the first two rounds of this policy, Medicare has achieved substantial discounts – for example, the 2025 negotiation of 15 costliest drugs is projected to cut their prices by 36%, saving about $8.5 billion in 2027reuters.com<ref>{{cite web|title=reuters.com|url=https://www.reuters.com/business/healthcare-pharmaceuticals/us-negotiated-medicare-prices-15-more-drugs-test-cost-savings-promise-2025-11-25/#:~:text=Nov%2025%20%28Reuters%29%20,in%20net%20covered%20prescription%20costs|publisher=reuters.com|access-date=2025-11-30}}</ref>reuters.com<ref>{{cite web|title=reuters.com|url=https://www.reuters.com/business/healthcare-pharmaceuticals/us-negotiated-medicare-prices-15-more-drugs-test-cost-savings-promise-2025-11-25/#:~:text=negotiated%20prices%20for%2015%20of,in%20net%20covered%20prescription%20costs|publisher=reuters.com|access-date=2025-11-30}}</ref>. These negotiated prices are being benchmarked in part against what other countries payreuters.com<ref>{{cite web|title=reuters.com|url=https://www.reuters.com/business/healthcare-pharmaceuticals/us-negotiated-medicare-prices-15-more-drugs-test-cost-savings-promise-2025-11-25/#:~:text=irritable%20bowel%20syndrome%20medicine%20Linzess,of%20%24136%2C%20down%20from%20%24539|publisher=reuters.com|access-date=2025-11-30}}</ref>. Expanding Medicare’s negotiation authority to more drugs (and potentially tohospital services or equipment contracts) could capture greater savings. Some proposals also suggest international reference pricing (often called “most-favored-nation” pricing), where U.S. payers would not pay more than an average of what other wealthy nations pay for the same drug or servicereuters.com<ref>{{cite web|title=reuters.com|url=https://www.reuters.com/business/healthcare-pharmaceuticals/us-negotiated-medicare-prices-15-more-drugs-test-cost-savings-promise-2025-11-25/#:~:text=Analysts%20said%20they%20will%20also,nation%20pricing%2C%20or%20MFN|publisher=reuters.com|access-date=2025-11-30}}</ref>. This could dramatically lower prices for medications that are much cheaper abroad.
* Promote Price Transparency and Antitrust Enforcement: The federal government has recently mandated price transparency for hospitals and insurers – requiring hospitals to post machine-readable prices for all services and insurers to disclose in-network and allowed amounts. Enforcing and enhancing these rules can empower payers and patients to identify egregious prices. Transparency by itself doesn’t set prices, but it exposes price variation and can shame some providers into moderating charges or justify regulatory intervention for outliers. Additionally, robust antitrust enforcement is crucial to prevent further consolidation and anti-competitive behavior. The current administration has signaled a tougher stance on healthcare mergers. The FTC and DOJ are increasingly challenging hospital system mergers, acquisitions of physician groups by dominant health systems, and even anti-competitive contract clauses (like all-or-nothing contracting or gag clauses that prevent sharing price information). Blocking mergers that would create monopolies can save future cost increases – for instance, stopping a hospital merger that might have led to a 20% price hike averts that added costmilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=There%20is%20clear%20evidence%20that,Private%20equity|publisher=milbank.org|access-date=2025-11-30}}</ref>. Federal regulators and Congress can also boost competition by banning certain practices that inflate prices, such as “site-neutral payment” reforms (paying the same for a service regardless of whether it’s done in a hospital outpatient department or a free-standing clinic). Site-neutral payment policies effectively cut prices for hospital-owned facilities (which often charge facility fees far above independent clinics). MedPAC estimates site-neutral payments for certain services could save Medicare billions and similarly reduce commercial costs. Congress is considering such policies to discourage hospitals from buying up physician offices just to charge more.
* Reforms to Drug and Device Pricing: Beyond Medicare negotiation, federal policy could include capping price increases for drugs (e.g. penalties if list prices rise faster than inflation, a provision already applied to Medicare Part D in the IRA) and encouraging generic and biosimilar competition to bring prices down. The creation of Prescription Drug Affordability Boards (PDABs) at the state level (discussed below) could be mirrored federally or supported via grants. Additionally, allowing safe importation of lower-cost drugs from Canada or Europe is another tool states and the federal government have explored (with FDA pilot programs under review)nashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,health%20plans%20in%20the%20state|publisher=nashp.org|access-date=2025-11-30}}</ref>. For medical devices and equipment, bulk purchasing by Medicare/VA or reference pricing could help standardize lower prices.
* Financial Impact: Federal price reforms can yield significant savings but must be calibrated to avoid harming access. As noted, all-payer rate setting at Medicare levels might save on the order of '''$300–$350 billion per year'''kff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=quality%E2%80%94key%20considerations%20for%20any%20proposal,margin%20services%20or%20care|publisher=kff.org|access-date=2025-11-30}}</ref>, though such an aggressive approach would face industry pushback and require offsetting support for providers in underserved areas. More moderate caps (e.g. capping commercial rates at 150% of Medicare) would save somewhat less but still hundreds of billions over time, while giving providers higher-than-Medicare revenue. Medicare’s drug price negotiations are already slated to save tens of billions over the next decade in the Part D programreuters.com<ref>{{cite web|title=reuters.com|url=https://www.reuters.com/business/healthcare-pharmaceuticals/us-negotiated-medicare-prices-15-more-drugs-test-cost-savings-promise-2025-11-25/#:~:text=Nov%2025%20%28Reuters%29%20,in%20net%20covered%20prescription%20costs|publisher=reuters.com|access-date=2025-11-30}}</ref>, and expanding this authority would multiply the effect. Transparency is harder to quantify, but even a 5% reduction in prices for the highest-cost hospital regions (due to public pressure or competition) could save on the order of tens of billions annually, given hospital care alone is a $1.3 trillion expense. Vigorous antitrust actions, by preventing future price hikes from mergers, protect consumers from hidden “costs” that would have materialized – for example, blocking a merger that would have added $100 million in annual costs keeps that money in consumers’ pockets or public programs. In summary, federal intervention sets the stage for broad cost containment by resetting the baseline of prices or curbing price growth nationally.