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Cracking The Code On Health Care Costs: What The States Can Do



January 7th, 2014

State governments have a unique opportunity to transform the current health care system into one that provides higher-quality care at lower costs. The State Health Care Cost Containment Commission was created to identify how states might use their authorities and policy levers to guide this transformation. The members of the Commission, consisting of two former governors and high-level executives from major national health plans, all shared the same conviction: state governments were much more likely to succeed in lowering the growth rate of health care costs than any federal action in the next few decades. Moreover, the states are well positioned to accelerate the current trend toward integrated, coordinated care organizations that are held accountable for meeting cost management and quality goals.

The goal envisioned by the Commission is straightforward but ambitious: Replace the nation’s reliance on fragmented, fee-for-service care with comprehensive, coordinated care using payment models that hold organizations accountable for cost control and quality gains. Achieving this will take time. There is inertia in the current system and few incentives for changing it. However, the states are in a strong position to achieve meaningful reforms and create the needed incentives with the support of payers, providers, insurers, and consumers. As the nation’s “laboratories of democracy,” states can serve as a proving ground for new approaches that raise the efficiency and value of health care.

The Commission’s report, “Cracking The Code On Health Care Costs,” will be released tomorrow at the National Press Club.

The Role of the States in Health Care

States play a major role in influencing health care and its delivery system. Using numerous policy levers, they can influence how the system is organized and how it operates. They can motivate it to pursue greater efficiency and enhanced quality and discourage market behavior that results in wastefulness and unreasonable price increases. Notable policy levers include:
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  • Government-sponsored health care programs such as Medicaid or Children’s Health Insurance Program (CHIP), state employee health benefits, and health insurance exchanges. States are a major market participant in health care, directing how dollars are spent for Medicaid/CHIP and for state (and often local) employee health benefits. States can use these investments to influence the health care system toward organizational structures that are accountable for cost management and quality improvement. States can also influence the type of plans offered in their insurance exchange. Exchanges can encourage the participation of plans that focus on quality, price, and value. States can steer consumers to higher-value plans by assigning ratings or displaying the plans more prominently on the exchange Web site.
  • Insurance, scope of practice, provider rates, and medical malpractice laws and regulatory authority. States possess several traditional authorities and powers that can influence health care delivery and the cost of care. They can use insurance premium rate review to identify provider costs that appear unreasonable. They can eliminate state-mandated benefits that do not reflect evidence-based medicine and contractual rules between insurers and providers that hinder more efficient care. Scope-of-practice rules can be changed to allow nonphysician providers to practice independently and at their full level of competency. Medical malpractice policies can be altered in an attempt to lower defensive medicine costs. And, as they have done in the past, states can elect to regulate the prices that providers charge for specific services.
  • Facilitating consumer choice through price and quality information and ensuring market competition through antitrust authority. States can require plans and providers to report information on prices and quality to encourage consumers to select high-quality, cost-efficient care. States also have their own antitrust authority, which can be used to discourage provider consolidation that leads to noncompetitive behavior.
  • Public health initiatives designed to improve population health. States can adopt policies to promote healthy communities, improve the physical well-being of children, and encourage exercise and better nutrition, including establishing school nutrition and physical education standards, providing financial support to expand local bicycle and walking paths, increasing community access to healthy foods by supporting farmers’ markets, and providing loans and grants to grocery stores that locate in underserved communities.
  • The power of governors, working with cabinet members and legislators, to engage stakeholders in major public policy issues and create a process for change. States can play a major role in engaging stakeholders and creating a framework to solve public policy issues. Developing a consensus among all stakeholders to modify norms, such as health care payment models, often can be as effective as new laws or regulations. In health care, governors and legislatures can create temporary or permanent commissions that bring together stakeholders to address rising health care costs. States can also create supporting institutions to collect, analyze, and track information on health care costs and quality over time.

Fixing the Problem

The underlying philosophy of the commission’s recommendations is to make the health care market work. The industry is already becoming more integrated and consolidated, which can set the stage for improved cost management and quality of care. It is important, however to recognize that there are risks as certain types of consolidations could be used to leverage power in the market place. States will have to monitor this and use the bully pulpit, promote transparency in cost of services, and possibility employ anti-trust powers to keep market power in check. Striking the appropriate balance will be important and states will have to monitor the trend. It is also true that it is going to require a long and concerted commitment by states to achieve “bending the cost curve”, most likely 5-10 years. There is no one new Law, new executive order or procedure that will change the system. It will require a comprehensive approach over a long period of time.

Finally, the recommendations here do not depend on the Affordable Care Act, The ACA can be implemented as is, be amended or repealed and the cost and quality problems will remain and will need to be addressed by states.

The members of the State Health Care Cost Commission offer the following seven recommendations:

Recommendation 1: Create an Alliance of Stakeholders to Transform the Health Care System. To move toward a more cost-effective health care system, government must form an alliance with purchasers, the medical community, and other stakeholders to create a consensus and commitment for change. Changing how health care is delivered will require a comprehensive approach that can take many years. A state can lead this transition and provide institutional support, but it cannot succeed without the long-term commitment of all stakeholders, including payers, consumers, and providers.

A state alliance for transforming health care delivery can take several forms, largely influenced by the culture and key players in the state. Some states may be able to effect change through temporary commissions, advisory groups, and volunteer efforts. Others may require more permanent and formal institutional structures and enabling legislation or executive orders. Whatever approach the state chooses, it must be prepared to lead and support certain critical actions, including establishing goals for improving quality, curbing spending, and monitoring progress.

Recommendation 2: Define and Collect Data to Create a Profile of Health Care in the State. Working with its stakeholder alliance, each state should establish a common definition of health care spending, identify quality-tracking measures, create a process for collecting cost and quality data, and conduct an initial analysis of where health care spending is concentrated and outside national norms. Each state should also conduct an inventory of the health care delivery infrastructure.

Recommendation 3: Establish Statewide Baselines and Goals for Health Care Spending, Quality, and Other Measures as Appropriate. A state and its alliance should establish appropriate targets for cost growth and quality improvements in the health care system. They should collect timely and accurate data annually and report to the public and policymakers on progress in meeting goals. Such annual reports should be used to inform the development of policies to assist in meeting the goals.

Recommendation 4: Use Existing Health Care Spending Programs to Accelerate the Trend Toward Coordinated, Risk-Based Care. States should use health spending programs they administer or oversee to support formation of high-performing coordinated care organizations that accept risk-based, global payments. Programs that states can use for leverage include Medicaid, the state employee health program (which can be combined with local government employees for increased influence), and health insurance exchanges.

Recommendation 5: Encourage Consumer Selection of High-Value Care Based on Cost and Quality Data, and Promote Market Competition. States can help ensure that consumers are given the information they need to consider cost in their health care decisions and that adequate competition exists in the health care marketplace. States can make the cost and quality of health care services more transparent by reporting such information on a statewide basis and requiring plans to publish such information for their members. Antitrust authority can be used proactively and reactively to ensure that consolidation of health care providers achieves greater efficiency, not market leverage over prices.

Recommendation 6: Reform Health Care Regulations to Promote System Efficiency. State health care regulations affecting insurance, scope of practice, and medical malpractice can influence health care costs. The state should review these policies to determine whether they promote cost efficiency or present obstacles to expanding the availability of risk-based, coordinated care.

Recommendation 7: Help Promote Better Population Health and Personal Responsibility in Health Care. States can use education and the bully pulpit, wellness programs for state employees, and public health initiatives to promote population health and encourage individuals to take more personal responsibility for their health care decisions. In addition, states can make it easier for individuals to make informed end-of-life treatment choices that reflect their personal wishes.

The imperative to reduce health care costs while improving its value has never been stronger. Forced to pay for escalating health care costs, states have neglected investments in education, highways and infrastructure, further depressing job and wage growth.  The year 2014 can be the year we turn the tide. The release of the Commission’s report this week at the National Press Club is timed to coincide with the 46 legislative sessions and 36 governors races that get underway in 2014. It is our hope that these recommendations can be the winning playbook governors and other state leaders need to transform our health care system to be more efficient, patient-centered and high performing.

Commission personnel. Raymond Scheppach is the project director and John Thomasian is the lead researcher and writer of the report. The Commission was co-chaired by Mike Leavitt, former Governor of Utah and Secretary of the U.S Department of Health and Human Services, and Bill Ritter former Governor of Colorado. Other members included Andrew Dreyfus, President and CEO, Blue Cross Blue Shield of Massachusetts; Simon Stevens, Executive Vice President, UnitedHealth Group; Glenn Steele Jr. M.D, President and CEO, Geisinger Health System; George Halvorson, Former Chairman and CEO, Kaiser Permanente; Jay Cohen, M.D., Senior Vice President, External Affairs, Optum; Joan Henneberry, Principal, Health Management Associates and Former Executive Director, Colorado Department of Health Care Policy and Financing; Robert D. Reischauer, Medicare Trustee and Former Director of the Congressional Budget Office; Lloyd Dean, President /CEO Dignity Health; Rob Restuccia, Executive Director, Community Catalyst; and Michael L Davis, Senior Vice President, Global Human Resources, General Mills.

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3 Responses to “Cracking The Code On Health Care Costs: What The States Can Do”

  1. Bett Martinez Says:

    Maureen,

    Are we back to “death “panels”? Kidding, of course. I know there’s relevance to what you say, but promoting living wills, I.e. dying sooner, is not going to save the whole thing. As these knowledgeable folks point out, bending the cost curve is extremely complex, an effort with a long tail.

    A modest suggestion: in CA, State employees are allowed to choose lower deductibles, copays, out of pocket max now for knee replacements negotiated by the State with certain providers @ $30000. Costa Rica has three excellent hospitals in the capital that provide same, including 10 days recovery, in spa conditions, including meals, for $15000 including a free guest, and $300000 reinsurance with a great co. in the event of complications. More savings ideas abound, including yours, an item already funded by CA Health Care Fdn. But each step must be selected and monitored carefully. Starting with State and local employees as the paper suggests would be a good way to go. As a long time insurance broker, and long ago health policy consultant, I’d love to be involved. Leavitt’s comments in a recent Kaiser Fdn post nailed issues, and Halvorsen was a great manager at Permanente, where he’s missed!

  2. Hans Says:

    Healthcare Pricing: A Flawed System of Imbalanced Incentives

    Prior to the 1960′s when health insurance was a rarity, consumers determined what they spent on healthcare (HC). Costs remained under 6% of GDP.

    Today in Singapore, where the consumer has control over HC expenditures with HC savings accounts, healthcare costs are less than 4% of GDP and have remained so for decades.

    Today in the US, consumers have little say, insurers and healthcare providers determining how the consumers healthcare money is spent. Costs are at 18% of GDP and rising.

    Near term, the incentive of insurers coincides with that of consumers, namely cost containment. Long term however, this incentive match breaks down, the insurer benefiting from higher costs which mean a greater volume of business and bigger profits. The incentive is to progressively provide more generous approved charges resulting in higher healthcare costs and higher premiums.. Healthcare costs could not have risen to the current 18% of GDP without the concurrence of insurers.

    No wrong doing is implied. We have a flawed system of imbalanced incentives reminiscent of anti-trust events of a century ago that needs to be corrected legislatively.

    If I’m wrong, tell me why?

  3. Maureen Coffey Says:

    Let me make a seemingly bold prediction: after studying the way “Affordable” care was implemented (flying in the face of all actuarial prudence by forcing insurers to accept applications for “houses already on fire”) in a few years (if not far sooner) first all those gold and platinum plans will collapse as the healthier members will exit when premiums are driven through the roof by those who choose these plans because they otherwise could not afford their own share of treatment costs. After that, the more basic plans will remain. In turn these will become unaffordable, plus the people originally in the gold and platinum will face bankruptcy as they cannot cover the rising gap of 30 to 40% of remaining costs. After that either the state will have to pick up all those bills or else the system will have to be radically reset. Everything else is a dream turning into a nightmare quite soon. Insurance is mathematics. Congress has acted like the parliament which earned laughs because it wanted to decree pi to be rounded off at 3.15 a few years ago. Now, the above commission could go down a different route: about 50% of health costs accrue over the last six months of a persons life (so called “terminal illness problem”) – due to measures that help no one really. But no one will ever dare say that openly.

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