The many different prices paid to providers and the flawed theory of cost shifting: is it time for a more rational all-payer system?

Abstract

In developed nations that rely on multiple, competing health insurers-for example, Switzerland and Germany-the prices for health care services and products are subject to uniform price schedules that are either set by government or negotiated on a regional basis between associations of health insurers and associations of providers of health care. In the United States, some states-notably Maryland-have used such all-payer systems for hospitals only. Elsewhere in the United States, prices are negotiated between individual payers and providers. This situation has resulted in an opaque system in which payers with market power force weaker payers to cover disproportionate shares of providers' fixed costs-a phenomenon sometimes termed cost shifting-or providers simply succeed in charging higher prices when they can. In this article I propose that this price-discriminatory system be replaced over time by an all-payer system as a means to better control costs and ensure equitable payment.