California Assembly Considers Bill to Limit Health Care Prices

Published April 27, 2018

The California state Assembly Health Committee is considering a bill that would create a government commission to set prices private health care providers can charge.

Assembly Bill 3087 (A.B. 3087), sponsored by Assemblyman Ash Kalra (D-San Jose), would create a government commission authorized to restrict what private health care practitioners may charge for services, including hospital stays, doctor’s visits, and procedures.

The committee held an April 24 public hearing on A.B. 3087.

Calls for Price Transparency

Devon Herrick, a policy advisor for The Heartland Institute, which publishes Health Care News, says introducing more transparency into health care costs would work better than government regulation.

“What California is trying to do is to rein in high medical prices,” Herrick said. “It’s a worthy goal, but they are misguided in their methods. Economists generally agree price controls are inefficient. Transparency would work better.”

Ignoring Supply and Demand

Adam Summers, a research fellow with the Independent Institute, says health care is not immune to the laws of supply and demand.

“Despite the mistaken claims of some that health care is somehow outside the realm of normal economic forces, the reason why health care is so expensive is simple: Government laws and regulations have served to increase demand while simultaneously restricting the supply of health care providers,” Summers said. 

‘Reference Pricing’ Alternative

Herrick says allowing third-party payers to require patients to pay out of pocket for exorbitant costs would help restrain the growth of health care costs.

“Legislation to promote greater use of reference pricing would be better,” Herrick said. “The best example of reference pricing is from California. The California Public Employees Retirement System ran a series of experiments where enrollees were allowed to go to any hospital for joint replacement. Those seeking care in high-priced hospitals had to pay all fees above $30,000. Enrollees were told which hospitals would honor that price. Within a year, most enrollees were seeking care at the high-value hospitals. A year later, most of the high-priced hospitals were matching the high-value hospitals’ prices.”

Predicts Worse Doctor Shortages

Price controls inevitably reduce access to goods and services, Summers says.

“Like other forms of price ceilings, from the minimum wage to rent control and numerous similar efforts before, this will benefit only a few and generally make things much worse for everyone else,” Summers said. “Doctors, who already struggle with low and notoriously late and unpredictable government reimbursements, are already warning that the new law would force many of them to move to less restrictive states or leave the medical field, which would only worsen the shortage of doctors caused by previous government supply restrictions and further reduce patients’ access to and quality of care.”