5 Ways We’re Bringing Down the Cost of Health Care
Policy + Politics

5 Ways We’re Bringing Down the Cost of Health Care

The Obama administration this week is unveiling plans for a big push over the next five years to improve the quality of primary care and bring down the costs of health care as part of President Obama’s long-standing pledge to “bend the cost curve” in the wake of the 2010 Affordable Care Act.

The new administration initiative, dubbed “Comprehensive Primary Care Plus,” is designed to transform the way physicians and clinicians treat more than 25 million patients when it takes effect next January.

Related: How Small Ideas Are Helping to Bend the Health Care Cost Curve

Central to the administration’s plan is a movement away from the costly “fee-for-service” system in which doctors and hospitals are reimbursed by Medicare and Medicaid for every visit and procedures. Instead, health care providers will receive an overall fee and bonuses that are linked to the quality of service and success in preventing the need for patients to return to the hospital or doctor’s office for related complications.

Hospitals and physicians would be required to provide patients with round the clock access to care and medical information and meet a series of standards or metrics for managing and coordinating care, according to the report. Beyond that, they can treat patients as they see fit, with fewer pressures to order extra tests or add to the overall cost of a patient’s medical treatment.

While much of the administration’s new plan sounds promising, these changes will take years to implement at the federal level as part of Medicare, Medicaid and other health programs. And depending on the outcome of the 2016 presidential and congressional campaigns, there’s no telling what direction the Department of Health and Human Services and the Centers on Medicare and Medicaid Services (CMS) will ultimately take.

Fortunately, while the federal government lumbers along, some states have already scored important victories in a drive to reduce billions of dollars in healthcare costs without sacrificing quality of service. Some of these breakthroughs may prove to be models for widespread reforms across the country.

Related: US Health Care Costs Surge to 17 Percent of GDP

The Center for American Progress (PDF) issued a study this week highlighting health care system reforms at the state level – including “bundling” payments to health care providers instead of fee-for-service and imposing annual spending caps on hospitals – that may be years away from implementation at the federal level.

“The current political environment makes it unlikely that reforms to control system-wide health care costs will be achieved at the federal level in the near future,” according to the study. “States, however, are well-positioned to take the lead on implementing cost control and quality improvement reforms. Indeed, many states are already innovating and seeing positive results.”

The states make much better laboratories for experimentation and innovation than federal health care programs for the elderly and poor for a number of reasons. Reforms sought at the state level can be tailored to the special needs of each state, contingent on the structure of its insurance market, population and demographic makeup. “States also have considerable authority over the regulation of health insurance and the provision of health care within their borders,” the study noted.

Finally, state governments preside over their Medicaid and children health insurance programs (CHIP) and state employee plans, as well as the insurance rate review process, physician licensing and regulations and anti-trust laws. With so much authority at hand, state officials have wide latitude in shaping their health care systems.

Related: Why the U.S. Is Being Gouged on Drug Prices Compared to Other Countries

“The innovations that some states are implementing to reduce costs while maintaining or improving quality can and should be replicated by other states,” the report concludes.

Here are five examples of what states have achieved already:

1) Setting cost growth goals – This means literally setting a cap on the growth of a state’s per capita health care spending and basing it on growth in the state’s economy. “These goals represent a public commitment to hold health care costs below a set target, increasing accountability for all stakeholders,” according to the report. While state initiatives they may not carry sanction powers or fines, they can apply pressure to hospitals and other health care providers and increase transparency of government data collection.

Massachusetts became the first state to set health care cost growth goals and limitations in 2012. A Health Policy Commission monitors cost growth targets and sets cost growth benchmarks for all hospitals, physician groups and payers. The commission is charged with notifying those who have exceeded their goals and can require them to implement improvement plans.

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The state of Maryland established similar cost growth goals in January 2014 in conjunction with the Centers on Medicare and Medicaid Services. That plan builds on an earlier state-adopted “all-payer rate setting system” that requires all payers to pay the rates that are set for each hospital to impose an overall annual cap on per capita hospital spending growth.

2) Publishing a state scorecard on health and cost outcomes. This reform requires only limited funding and doesn’t necessitate new legislation, so there’s no reason why most states shouldn’t try it. A scorecard would allow health care providers, insurers, patients and other stakeholders to track progress towards’ states’ cost-curbing goals and increase public accountability.

While there are many metrics to choose from, some that are currently used in Maryland and Oregon include life expectancy, the rate of infant mortality, the rate of cancer and other serious diseases, the rate of immunization of children and the rate of  hospital acquired infections. Maryland created its scorecard in 2011 and now posts data of its measures on an interactive website, with the data broken down by country, race and ethnicity.

3)  Adopting reforms of the payment and delivery system. This move, growing in popularity, is designed to set goals and change the payment and delivery system to reward high-value care instead of the doctors and hospitals that submit the most charges.

Sylvia Burwell, the secretary of health and human services, recently announced a nationwide target of making half of all Medicare payments through alternative, cost-saving payment models by 2018 and linking 90 percent of payments to value or quality. Some states have already moved in this direction, including Massachusetts, Maryland and Rhode Island.

Related: Medicare Sees Striking Increase in Specialty Drug Costs

Rhode Island’s Working Group for Healthcare Innovation, for example, recommended that all of the states phase out fee-for-service payments in favor of bundled payments. Massachusetts’ 2012 cost control legislation mandates that  80 percent of its Medicaid beneficiaries be covered by an alternate approach to payments effective last July.

4) Improving price transparency. There is currently a huge mystery as to how hospitals, doctors and other health care providers set costs. Frequently, consumers don’t know how much a procedure, medication, or hospital stay will cost them or their insurance companies. Moreover, prices for the same service can vary significantly by providers, and some providers charge different payers different amounts for the same service.

“Price transparency provides consumers with accurate and timely information that they can use to make informed health care choices,” according to the study. “Transparency also can expose market conditions and make markets more competitive, resulting in prices that reflect the cost and value of the health care services that are provided.”

New Hampshire has been a pioneer in price transparence and, according to the report. The state used a database to publish the actual costs that consumers can expect to pay for health care services and provided an on-line interface that enables people to shop around for the best deal. Massachusetts has also taken the lead in price transparency during the past two years, and has required insurance companies and health plan administrators to provide consumers with estimate from providers of their out-of-pocket costs.

5) Decreasing the unnecessary use of hospital emergency rooms. States have options within their Medicaid programs to reduce costs and improve health outcomes without unduly restricting access to care, according to the report.

For instance, several states – including Georgia, New Mexico, Indian and Minnesota -- have implemented emergency room diversion program to reduce the unnecessary and often costly use of emergency rooms by low-income individuals. Georgia used a federal grant to create an “ER diversion project” that established four primary care sites in rural areas or places deemed poorly served with extended or weekend hours. New Mexico created a “24/7 nurse advice hotline” that is available to anyone in the state.

The study was conducted by Zeke Emanuel, a senior fellow at the Center for American Progress and one of the architects of the Affordable Care Act; Joshua Sharfstein, an associate dean for public health practice and training at the Johns Hopkins Bloomberg School of Public Health; Topher Spiro, Vice President for Health Policy at the center, and Meghan O’Toole, a policy analyst at the center.