All-Payer Rate Setting: A Framework for a More Efficient Health Care System

The United States is unique among countries with health care systems that rely primarily on private insurance companies because there are generally no regulations that mandate a standard fee schedule for health care services. The prevalence of multiple private and public insurers is known as a multi-payer system. Other countries that have multiple payers set prices unilaterally, as is the case in Japan, or through negotiations between payers and providers, as is the case in Germany. The outcome is a uniform set of prices that applies to all payers within a single hospital. This framework is known as all-payer rate setting. This paper explains how all-payer rate setting regulation can mitigate several problems plaguing the US health care system. Examples include cost shifting, price discrimination, and provider market leverage. The paper then analyzes how these problems negatively affect the US health care system. Finally, the benefits of all-payer rate setting are explained, followed by the downsides (or tradeoffs) of such a system.