Question

Describe and provide examples of price and quality controls in health care policies.

Answer 1

Controlling health care costs requires that limits be placed either on prices, quantities of services, or both. Prices are measurable and more easily controlled than is quantity and, consequently, health care cost containment has frequently focused on mechanisms for controlling prices. Regulatory approaches, however, may create market distortions and change access patterns. An alternative approach to controlling prices is to restructure the market for health services to encourage greater price competition among providers. Because this type of health reform has not previously been attempted, there is much more uncertainty about the outcome of market-oriented approaches than for direct regulatory control over prices.

In the absence of any changes in the quantity or mix of services, reducing the prices of services should lead to lower total expenditures. Studies of the effects of fee freezes or price controls suggest, however, that changes in the quantity or mix of services typically do occur. For example:

• More services may be provided or billing practices may change to offset the reduction in providers' revenues when prices are reduced.

• Providers may substitute other services for those whose prices are controlled.

• Price controls implemented for a specific population group (such as Medicare or Medicaid enrollees) may result in higher prices charged or an increase in services provided to other population groups.

• When prices are controlled for only some groups, those groups may have reduced access to health care or receive lower quality services than others.