6 ways to rein in costs in the US healthcare system
Healthcare costs are higher in the United States than any other developed country—but this isn’t due to a population running to the emergency room at every turn. Americans see medical professionals roughly as much as those in Canada or Australia. They just pay more for each intervention.
Two experts—Dhruv Khullar, a researcher with Weill Cornell Medical College in New York, and Rahul Rajkumar, chief medical officer with Blue Cross Blue Shield of North Carolina—discussed innovations to control healthcare costs in the U.S., including pricing reforms and payment modifications.
The authors detailed six suggestions in an article published online April 20 in the BMJ.
Solutions must come from an understanding of what drives costs in the U.S. Market forces, government regulation and usage rates all affect prices—and present a tricky set of variables that can leave price control as a bit of a moving target.
“In Medicare, providers generally receive the same administratively set rate with relatively minor adjustments for geography, case mix and quality, but these prices are influenced by powerful industry lobbies that advocate for higher rates,” the authors wrote. “For private payers, prices are often driven by their relatively weak bargaining power compared with consolidated providers (providers that have merged, often by acquiring smaller providers, and can negotiate as a single entity).”
The authors offered proposed actions to control price, rather than indirect solutions such as exerting influence on the healthcare market.
1. Maximize value in Medicare fees
“One proposal is to reform the Medicare Physician Fee Schedule (MPFS) to better incorporate the value of a service into its price,” Khullar and Rajkumar wrote. “Under this system, Medicare sets the prices in MPFS, and almost all payers then use these prices as a starting point when negotiating payments. These rates also powerfully influence how physicians spend their time and what specialties they choose to enter.”
The current relative value unit (RVU) system is inefficient in pricing because it values procedures over “cognitive work,” such as formulating treatment for complex cases. The RVU system also pays physicians for time work and expense, instead of patient outcomes and patient satisfaction.
2. Set standard rates
Tiered systems of payments—which can vary between public and private payers—are inefficient and can unevenly distribute spending and cost.
“A second approach to reducing prices would expand the use of all-payer rate setting (APRS), which curtails price increases and reduces price variation arising from unequal market power between payers and providers,” the authors wrote. “Maryland, for example, currently operates an APRS system in which an independent commission sets the rates that all payers—public and private—pay each hospital for its services.”
3. Improve bundled payments
Bundling payments from payers to providers can allow for increase price shopping and, therefore, encourage competition. If such payments are widely adapted, innovative drugs and treatments could be included in the price of care.
“Such an approach may increase price and quality competition among providers, as well as transparency for consumers. Bundles encourage economies of scale, incentivize providers to improve their understanding of their cost structure, and allow smaller hospitals and ambulatory surgical centers to compete with larger ones.
4. Expand bidding
One market-based solution would pit potential providers against one another to reduce prices by competitive bidding.
“The federal government might also consider expanding the use of competitive bidding beyond Medicare’s Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Program,” Khullar and Rajkumar wrote. “DMEPOS allows suppliers to submit bids to provide medical equipment and supplies—such as oxygen tanks, diabetes supplies, and hospital beds—to Medicare beneficiaries, provided they meet certain requirements.”
5. Encourage price shopping
If the U.S. insurance market is pushing individuals to higher deductible plans, patients should be allowed to shop around, since more of their money will be going toward the final bill.
“In theory, this ‘consumerism’ creates incentives for patients to search for providers that offer less costly services without compromising quality, thereby encouraging providers to lower prices,” the authors wrote. “But in practice, it’s not clear that healthcare consumers consistently identify and seek out high-value or low-cost services.”
6. Price with an emphasis on pricing
Medicare and Medicaid could adjust rates over time, after value is determined, while private payers could encourage cheaper treatments with similar outcomes.
“Prices paid for new drugs and technologies could more accurately reflect the added value they provide over established treatments based on an assessment of how well they improve quality or quantity of life,” they wrote. “One approach is to pay higher prices for new drugs and technologies for three to five years after they are introduced—which encourages innovation—but continue to pay those higher prices only if the product has shown greater value over existing treatments.”
Nicholas joined TriMed in 2016 as the managing editor of the Chicago office. After receiving his master’s from Roosevelt University, he worked in various writing/editing roles for magazines ranging in topic from billiards to metallurgy. Currently on Chicago’s north side, Nicholas keeps busy by running, reading and talking to his two cats.