11 Ways to Reduce Healthcare Spending

Healthcare spending is out of control.  That was the reason why Congress passed the Affordable Care Act (ACA), right?  Over two years later, we have yet to realize the benefits of healthcare reform, yet spending continues to rise though less than before, outcomes are improving in some areas, but in others still lacking, and what about quality? 

The ACA has a lot of bells and whistles, but have we really seen any improvement?  It’s great that 26-year-olds have insurance and that individuals with pre-existing conditions are getting coverage, but what about spending?  Almost 20% of America’s GDP, how can we solve this problem?  In fact, this year, national spending on health care will reach $2.8 trillion, or about 18% of total spending on all goods and services.  And national health spending is projected to continue to grow faster than the economy, increasing from 18% to about 25% of the gross domestic product (GDP) by 2037.

Healthcare reform proposed Accountable Care Organizations (ACO), value-based purchasing, and several other semi-novel ideas, however, the benefits will likely be realized only years from now.  Accordingly, a group of Democrat health policy experts recently published “A Systemic Approach to Containing Health Care Spending,” in the New England Journal of Medicine (NEJM).  Authors included Tom Daschle, Ezekiel Emanuel, M.D., Ph.D, Donald Berwick, M.D. (former CMS administrator), and Josh Sharfstein, M.D. (former deputy FDA commissioner).

These experts convened through the Center for American Progress to develop bold and innovative solutions that meet certain criteria, such as effectively containing costs, both medical prices and the quantity of services; reducing costs for public and private payers, and rooting out administrative costs that do not improve health status or outcomes.  Accordingly, they offered 11 solutions that would be most effectively offered as a package. 

Promote Payment Rates within Global Targets: The authors recommended that an independent council composed of providers, payers, businesses, consumers, and economists set and enforce the spending target to contain costs.  The federal government would award grants to states to promote this self-regulation model.  States could phase in this model, one sector (e.g., hospitals) at a time.  To receive grants, states would need to publicly report measures of quality, access, and cost and would receive bonus payments for high performance.  For providers, the negotiated rates would be adjusted for performance on quality measures, which should be identical for public and private payers.

Accelerate Use of Alternatives to Fee-for-Service Payment: Instead of paying a fee for each service, payers could pay a fixed amount to physicians and hospitals for a bundle of services (bundled payments) or for all the care that a patient needs (global payments).  As soon as possible, both public and private payers should adopt the bundles for 37 cardiac and orthopedic procedures used in the Medicare Acute Care Episode program.  The bundles will also need to include rehabilitation and postacute care for 90 days after discharge.  Within 5 years, Medicare should make bundled payments for at least two chronic conditions, such as cancer or coronary artery disease. Within 10 years, Medicare and Medicaid should base at least 75% of payments in every region on alternatives to fee-for-service payment.

Use Competitive Bidding for All Commodities: Evidence suggests that prices for many products, such as medical equipment and devices, are excessive.  Instead of the government setting prices, market forces should be used to allow manufacturers and suppliers to compete to offer the lowest price.  In 2011, such competitive bidding reduced Medicare spending on medical equipment such as wheelchairs by more than 42%.  The ACA requires Medicare to expand competitive bidding for equipment, prosthetics, orthotics, and supplies to all regions by 2016.  The authors recommended expanding this program nationwide and extend competitive bidding to medical devices, laboratory tests, radiologic diagnostic services, and all other commodities.  To oversee the process, they recommended that Medicare establish a panel of business and academic experts.

Require Exchanges to Offer Tiered Products: To address market dominance, insurers can offer tiered plans. These insurance products designate a high-value tier of providers with high quality and low costs and reduce cost sharing for patients who obtain services from these providers.

Require All Exchanges to be Active Purchasers: As soon as reliable quality-reporting systems exist and exchanges achieve adequate scale, it is critical that federal and state exchanges engage in active purchasing — leveraging their bargaining power to secure the best premium rates and promote reforms in payment and delivery systems.  The authors recommend that exchanges adopt bonus payment model for the Medicare Advantage plans or a similar pay-for-performance model for participating plans and award a gold star to plans that provide high quality at a low premium. 

Simplify Administrative Systems for All Payers and Providers: The United States spends nearly $360 billion a year on administrative costs, accounting for 14% of excessive health spending.  Section 1104 of the ACA requires uniform standards and operating rules for electronic transactions between health plans and providers.  Although plans must comply with these standards and rules, the law does not require providers to exchange information electronically.

First, the authors suggest that payers and providers electronically exchange eligibility, claims, and other administrative information as soon as possible. Second, public and private payers and providers should use a single, standardized physician credentialing system.  Currently, physicians must submit their credentials to multiple payers and hospitals.  Third, payers should provide monthly explanation-of-benefits statements electronically but allow patients to opt for paper statements.  Fourth, electronic health records should integrate clinical and administrative functions — such as billing, prior authorization, and payments — over the next 5 years.  For instance, ordering a clinical service for a patient could automatically bill the payer in one step.  They also recommend another task force consisting of payers, providers, and vendors to set binding compliance targets, monitor use rates, and have broad authority to implement additional measures to achieve systemwide savings of $30 billion a year.

Require Full Transparency of Prices: Price transparency would allow consumers to plan ahead and choose lower-cost providers, which may lead high-cost providers to lower prices.  Although price transparency could facilitate collusion, this risk could be addressed through aggressive enforcement of antitrust laws.  It is important that all private insurers and states provide price information that reflects negotiated discounts with specific providers. The information should include one price that bundles together all costs associated with a service, individualized estimates of out-of-pocket costs at the point of care, and information on quality of care and volume of patients so that consumers can make informed decisions on the basis of value.

Make Better Use of Nonphysician Providers: Restrictive state scope-of-practice laws prevent nonphysician providers from practicing to the full extent of their training. For instance, 34 states do not allow advanced-practice nurses to practice without physician supervision.  Making greater use of these providers would expand the workforce supply, which would increase competition and thereby lower prices.  The authors recommend that the federal government provide bonus payments to states that meet scope-of-practice standards delineated by the Institute of Medicine.  Medicare and Medicaid payments to nonphysician providers should allow them to practice to the full extent permitted under state law.

Expand the Medicare Ban on Physician Self-Referrals: The authors recommend expanding the Stark law to prohibit physician self-referrals for services that are paid for by private insurers.  In addition, the loopholes for in-office imaging, pathology laboratories, and radiation therapy should be closed.  Physicians who use alternatives to fee-for-service payment should be exempted because these methods reduce incentives to increase volume.

Leverage the Federal Employees Program to Drive Reform: The Federal Employees Health Benefits Program (FEHBP) provides private health insurance to 8 million federal employees and their families.  They recommended that the FEHBP align with Medicare by requiring plans to transition to alternative payment methods, reduce payments to hospitals with high rates of readmissions and hospital-acquired conditions, and adjust payments to hospitals and physicians on the basis of their performance on quality measures. In addition, the FEHBP should require carriers to offer tiered products and conduct competitive bidding on behalf of plans for all commodities. Finally, the FEHBP should require plans to provide price information to enrollees and prohibit gag clauses in plan contracts with providers.

Reduce the Costs of Defensive Medicine: A more promising strategy would provide a so-called safe harbor, in which physicians would be presumed to have no liability if they used qualified health-information-technology systems and adhered to evidence-based clinical practice guidelines that did not reflect defensive medicine. Physicians could use clinical-decision support systems that incorporate these guidelines.  Under such a system, the physician could use the safe harbor as an affirmative defense at an early stage in the litigation and could introduce guidelines into evidence to avoid a courtroom battle of the experts. The patient could still present evidence that the guidelines were not applicable to the particular situation, and the judge would still determine their applicability.

Conclusion

Though we are still early in the implementation of the Affordable Care Act, we are seeing signs that the fee for service culture is leaving us behind and the rate of costs increases have slowed down.  Ultimately, the authors maintained that these 11 proposes are “the types of large-scale solutions that are necessary to contain health costs.”