On Sunday, Alec MacGillis wrote an excellent article that addressed a subject we’ve discussed in this space, namely the way in which PPACA will impact the power of medical providers to set prices:

“We spend fewer per capita days in the hospital compared with other advanced countries, we see the doctor less frequently, and we swallow fewer pills,” said Jon Kingsdale, who oversaw the implementation of Massachusetts’s 2006 health-care law. “We just pay a lot more for each of those units than other countries.”
The 2010 law does little to address this. Its many cost-control provisions are geared toward reducing the amount of care we consume, not the price we pay. The law encourages doctors and hospitals to join “accountable care organizations” that have financial incentives to limit unnecessary care; it beefs up “comparative effectiveness research” to weed out inefficient treatments; and it will eventually tax the most expensive insurance plans to restrain consumers’ superfluous use of health care.
Such measures could reduce redundant tests, emergency room visits and hospital readmissions, which would help control the costs of Medicare, where the government sets rates. But they are less likely to lower prices outside Medicare and stem the growth of private insurance rates.

As MacGillis goes on to explain, the central reason the health reform effort didn’t tackle the power of providers is that doing so would have proven a politically insurmountable challenge. Interestingly, MacGillis chooses to focus on the public option as a strategy that would’ve allowed the public sector to exercise more pressure on medical providers. And there’s certainly something to this idea: a centralized purchaser could negotiate deep discounts and gather useful comparative data. It’s not clear, however, that it would be very nimble or innovative.

Disappointingly, MacGillis doesn’t address the work of Clayton Christensen and others who suggest facilitating business model innovation is a more promising strategy for tackling the price problem. Indeed, PPACA actually entrenches the power of large, inefficient general hospitals.

MacGillis lays out three possible approaches for policymakers:

But we didn’t do both in the health-care law, which raises the question of what will happen once the overhaul proves inadequate to the price problem. Perhaps the public option will be reconsidered, as many liberals hope. Perhaps there will be a new push for lower drug prices. Or maybe there will be a return to the rate-setting that prevailed decades ago, when hospitals, insurers and state officials worked together to agree on prices. Maryland is the only state that still does this, and data suggests that it has kept its cost growth lower than average. Massachusetts is considering a similar approach.

As you can see, the three approaches he outlines are really just one approach: tighter government control of medical providers. The next time MacGillis addresses this subject, I hope he reaches out to Jason Hwang at the Innosight Institute and Christensen at Harvard Business School. MacGillis’s approach is not the only approach, and far from clear that it is the most promising approach.