Should government regulate health care prices? Massachusetts weighs the option.

Massachusetts Gov. Deval Patrick has been pursuing health care cost reforms in his state. (Faith Ninivaggi/Washington Post) After passing universal coverage, Massachusetts is now in the throes of a debate about how to bring down its skyrocketing health care costs. And the state’s new proposal to regulate how much providers charge for health care could mark a very important and controversial chapter in that fight.

Right now, Massachusetts’s premiums are among the highest in the nation. One way to fix that is to bring down the cost of medical care by requiring some providers, who charge a lot for health care now, to charge less. In a report this past spring, the state found that some Massachusetts doctors charge six or seven times as much as their colleagues for the exact same procedures. Across the board, a three-fold variation in prices was pretty standard.

There’s a pretty simple explanation for all the price variation: hospitals negotiate specific rates for specific insurance companies. They gauge the size of the insurance company and how many patients it would be expected to bring in, and then set a price. Insurers and hospitals alike closely guard those pricing agreements as proprietary information, with neither party wanting to see their pricing agreement undercut by a competitor.

Massachusetts wants to do away with all of that. In a proposal released Wednesday, the Massachusetts Special Commission on Provider Price Reform recommends allowing a panel of state regulators to reject rates charged by hospitals and providers if they’re too high. The report, which you can read here, also proposes the creation of a claims database, which would allow the public to see how much their health care actually costs.

That would be a really big shift from where we are now, where price negotiations are usually a private matter between insurers and providers, and it’s nearly impossible to figure out how much a given procedure costs. A recent Government Accountability Organization report really hit home on this. The agency called up 17 hospitals at random to ask how much a knee replacement would cost. Not a single one of them could name a price for one of the country’s most common surgeries.

Hospitals are not fans of government involvement in setting their prices. It’s telling that, among the 10-person commission that wrote the new report, the only member voting against was a representative of the Massachusetts Hospitals Association.  And, right now, the report is still just a recommendation. No board exists yet. But if it does come to fruition, it could mark an important new chapter in the Massachusetts health reform experiment.