(Also available at Forbes Blog, Science and Business.) How can health care costs be controlled in Massachusetts? According to a June 22 report from the state’s Office of the Attorney General (OAG), the answer includes temporary controls on prices negotiated between payers and providers. Specifically, the report recommends “at least setting temporary statutory restrictions on how much prices may vary for comparable services” in order to “moderate price distortions, without price setting, . . . as a stop-gap until the corrective effects of tiered and limited network products can improve market function.”

The analysis supporting and rationale for this recommendation from the office of Attorney General Martha Coakley, defeated by Scott Brown for the U.S. Senate in early 2010, have important implications for the national debate about healthcare reform and cost control.

First, as was true for the OAG’s 2010 report on cost control, the 2011 report was motivated by continued rapid growth in Massachusetts healthcare costs following the enactment of its healthcare reform law in 2006. That cost growth further highlights the “expand coverage now – deal with costs later” philosophy underlying the Massachusetts law and its nationwide descendant, the Patient Protection and Affordable Care Act. It also highlights that when “later” arrives, proposed solutions will likely include a heavy dose of additional government controls on private contracting.

Second, the OAG recommends price controls as a temporary solution to address variation in spending for hospital and physician services that cannot readily be explained by variation in the health status of patients or summary measures of health care quality. The report vaguely blames that unexplained variation on “dysfunctional” markets. The analysis parallels studies of geographic variation in Medicare spending and associated views that Medicare spending can be cut significantly in high cost regions without any reduction in the quality of care. In contrast to the conclusions of the OAG analysis and much of the Medicare research, substantial uncertainty exists about the extent to which variation in spending across regions or providers that researchers have been unable to explain is in fact attributable to unmeasured differences in patient health and quality of care.

Despite the headlines given to the OAG report’s price control recommendation, that recommendation receives very little discussion in the 54 page report. Instead, the report focuses on analyzing spending using data from major insurers and providers. It also includes useful discussion of the impediments to coordinated care and to the limitations and drawbacks of global payments to providers (capitation) as a cost control mechanism, in contrast to an earlier recommendation to adopt global payments universally by the state’s Special Commission on the Health Care Payment System.

The OAG favors giving “consumers increased options and incentives to make value-based purchasing decisions through tiered and limited network products that, without penalizing necessary and appropriate use of health care, make consumers more responsible for differences in cost when they select a more expensive provider.” But it argues that those mechanisms “cannot counteract, on their own, historic price disparities that threaten many health care providers.” The report contains no discussion of the potential (inevitable) adverse effects of price controls. It’s not even clear that limits on “how much prices may vary for comparable services” would help lower costs, as opposed to exerting upward pressure on reimbursement to providers currently receiving relatively low reimbursement. Overall, the price control recommendation seems to come out of Fenway’s short left field.