Price-setting in Public and Private Health Care Provision: Mechanisms and Consequences
Prices are of obvious interest as economists and policymakers consider growing health care spending and the supply of health care. Yet the economic determinants and consequences of price-setting in health care are poorly understood, particularly the interaction between public- and private-sector pricing mechanisms. The first paper of this session exploits unique data from the committee tasked with recommending prices for new and existing medical procedures to the Center for Medicare and Medicaid Services. It studies the effect of this committee, the Relative Value Scale Update Committee (or the RUC), on relative prices, finding that greater affiliation between proposing medical specialties and the RUC voting membership generates higher administratively set prices. The second paper elucidates an important link between public-sector prices (i.e., Medicare prices) and private-sector spending and shows that changes in overall Medicare spending has an outsize effect on total health care spending due to private-sector spillovers, contributing to overall inflation. The third paper uses broad and detailed data spanning multiple health care markets to assess, to a level that surpasses the current literature, how bargaining and competition across private-sector markets determines prices.