3 levers to cut healthcare costs

3 levers to cut healthcare costs
June 16 01:00 2014

3 levers to cut healthcare costs

The healthcare industry is in a “cost crisis,” fueling an increased interest in cost control, according to a presentation Thursday at the AHIP Institute in Seattle.

“It’s called the Affordable Care Act for a reason,” said Meredith Rosenthal, Ph.D., associate professor at the Harvard School of Public Health. If healthcare doesn’t remain or become affordable, expanded coverage through the mandates won’t work.

In the post-ACA world, policymakers and industry leaders are looking at cost control in a way that will get waste out of the system while doing as little harm as possible. Below are three levers Rosenthal said could help payers and providers do just that.

1. Price transparency

Rosenthal recommended arming patients with more information about how much care will cost before they make a choice, as well as giving them the ability to compare providers based on out-of-pock cost differences.

While the public domain has made some price information available during the past five years, most of that information is too generic. It’s usually at a CPT code level–a level that makes no sense to a patient. Moreover, that information has been an average cost, which would only be useful for patients who want a ballpark idea.

To enhance price transparency, Rosenthal pointed to tailored cost calculators that take into account deductibles and cost-sharing parameters that allow patients to compare providers as they would hotels.

2. Reference pricing

Another way to encourage consumers to choose high-value, low-cost providers is reference pricing, according to Rosenthal. She cited the success of CalPERS and Anthem Blue Cross’ reference pricing for hip and knee replacements.

Anthem set a reference price of $30,000 for the procedures; consumers who went to a hospital above the limit would pay the difference. The reference pricing saved $5.5 million over two years. And the prices for knee replacement dropped by 25 percent as patients shifted to lower-cost hospitals and hospitals renegotiated their rates to keep from losing patients, she explained.

he competitive payer environment, price variations and the challenge of convincing patients that low cost doesn’t mean low value could prevent reference pricing from becoming widespread. So minor, elective procedures might work best for reference pricing, Rosenthal noted.

3. New delivery and payment models

Payers need to take new delivery models and layer on payment reforms to achieve significant savings. Those new delivery models include technology-supported healthcare delivery, team-based chronic care models, patient-centered medical homes and care management programs, to name a few.

In addition to incentivizing those proactive, systematic delivery models, payers must implement new risk sharing payment models–such as bundled payments, global payments and shared savings, Rosenthal noted. For example, accountable care organizations are the delivery system framework for global payments in Medicare.

“A mix of all of these levers is surely the right way to go,” she told the audience.

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