Massachusetts is still struggling with controlling health care costs since it decided to embrace health care reform by just expanding our broken private insurance system to cover more people. A problem in Massachusetts, which is common around the country, is that there are huge variances in what is paid for the same procedure. From the Boston Globe:

Cambridge Health Alliance was paid less than $5,000 each for 55 caesarean sections performed in 2009, while Massachusetts General Hospital was paid more than $10,000 each for 483 caesarean deliveries that year, state officials found.

They said it was unclear why insurers paid some hospitals dramatically more, since officials found no obvious differences in quality of care, and their analysis allowed for instances in which hospitals treat sicker patients.


If the range of payments is narrowed to bring the lowest-paid providers up 20 percent and the highest-paid providers down 20 percent, insurers would actually save $267 million, she said.

The huge prices charged by some hospitals shouldn’t be surprising if you understand the market issues at play. It takes a large population to support a hospital and people can only travel so far to get to one. The result is some hospitals are functionally de facto monopolies over an essential service. They can use this huge market power to demand big rates. This same inherent monopoly issue is why we regulate utilities and the rest of the world regulates prices in their health care systems.

This particular problem in Massachusetts could be easily fixed if there were the political will, by the state adopting an all-payer law. In Maryland, there is a state board that sets a fair and relatively uniform pricing scheme for all hospitals in the state, and every payer, public insurance, private insurance, and those paying directly out of pocket, pays the same rate. Hence, the name “all-payer.” Not only does it reduce administrative waste, but both Maryland’s hospital costs and the cost growth rate are extremely low.

Maryland only uses all-payer for hospitals. First-world countries that don’t have single-payer health care systems, such as Germany, Japan and Switzerland, use all-payer systems that set the price for almost every health care service. This is why their health care costs are so much lower than ours.