Healthcare pricing is complex and can be difficult to understand. The prices of hospitals and outpatient centers are calculated by combining the records of patients who received a particular treatment or service at that center. The price includes fees paid to the center, the doctor and any other health professional. Prices are calculated using the claims records of individuals with commercial health insurance who received care during the current year.
Claims are filed by insurers that provide health insurance coverage in the state and cover about 2 million people, many of whom purchase insurance through their work. In general, healthcare costs in the United States have grown faster than inflation. Per capita health spending far exceeds other large and rich countries, and health care represents a much larger proportion of the U.S. economy.
UU. High healthcare spending in the U.S. Rising health care costs contribute to many people having difficulty paying for health care and medications, even among those with insurance. The health system is facing disparities and gaps in coverage.
The first step in understanding healthcare costs is to be able to distinguish between terms such as “cost”, “charge”, “price” and “reimbursement” (table. These terms have specific meanings, but their interpretation often depends on the perspective of the person being considered. For patients, the cost generally represents the amount they have to pay out of pocket for health care services. This cost is very different from the amount that providers pay (that is, to make matters even more complicated, the cost to the provider is often calculated to include the costs of categories such as staff and equipment that may seem disconnected from the care of an individual patient). The need for all of this terminology reflects the complexity of health care transactions.
This complexity is largely due to the involvement of several parties: the patient, the providing organization and the “third party payer (insurer)”. Sometimes, a third party also intervenes, such as a large employer offering health insurance as a benefit (often referred to as “the buyer”). When talking about healthcare costs, it's important to ensure that the correct terminology is used and that it's clear from what perspective the costs are being considered (i.e., how do the costs relate to the “charge” or “price” that healthcare providers put on the bill? Well, sadly, there's often no clear relationship. The relationship would be clearer and the costs per service would be easier to calculate if the costs were assigned to categories such as “patient registration” and “history collection”. While this is not impossible, it would involve a lot of work, since it would require direct observation of each “labor input”, that is, very few supplier organizations are willing to make this type of effort.
Most hospitals have a “chargemaster”, a detailed price list, similar to the menu of a restaurant. Healthcare facilities usually set prices for Chargemaster much higher than the amount that insurers reimburse or pay them for. While this may seem strange at first, it allows hospitals to set a high starting point for negotiating behind closed doors with different commercial insurers and charging very high rates to the small fraction of self-paying patients who can afford the maximum or “fixed” price. Of course, the group of patients who “pay on their own” is heterogeneous.
While it may include the wealthiest patients who seek care regardless of the price, it also includes those who are completely uninsured, such as illegal immigrants. This movement has been made possible in recent years thanks to a variety of new websites and tools that provide information directly to patients about the charges they might face. The independent source for research, surveys and news on health policies. In this paper, we analyze several policy options for reducing healthcare spending and improving affordability by restricting prices, including price regulation (i.e., we provide examples of these options that are currently being used at the state and federal levels) and discuss how those experiences can inform future initiatives. As with all complex policy decisions, these approaches pose difficult concessions and can face significant opposition from hospitals and other healthcare providers, depending on the details of how they are implemented.
We describe considerations related to policy design and analyze the advantages and disadvantages of adopting each option and design decision. After reviewing each option, we analyze legislative and regulatory avenues for adopting new policies, as well as considerations for monitoring and enforcement. The prices commercial insurers pay providers are largely dictated by market conditions, as hospitals and other healthcare providers charge higher prices when they have more influence in negotiations with insurers. A large amount of research has documented that commercial insurers pay higher prices than Medicare for comparable services, and that gap is growing.
Commercial insurers pay, on average, about twice the Medicare rates for hospital services and about 143 percent of Medicare rates for medical services, with wide variations between markets. These approaches could work (and in some cases already work) within the current health insurance system, or they could be combined with the role of federal or state governments in expanding public insurance delivery (for example, public option proposals). They could be widely used at the national or state level, or in a specific way, for example, in areas where supplier prices are high or for types of services where prices have increased considerably. While this document focuses on policy approaches that limit hospital and doctors' spending by putting downward pressure on prices, they could also have effects on the volume and, potentially, the quality of services provided. Providers can respond to price changes in many ways, some of which may affect access or quality, and others may change or increase volume.
To reduce potential adverse effects, these approaches could be gradually introduced, monitored and adjusted. While a number of proposals to control the prices of prescription drugs are currently being debated, those proposals are beyond the scope of this document. The most common form of price regulation is pricing, which sets a fixed price for each service paid to each provider. Pricing has a long and continuing history in the United States, both at the federal and state levels.
At the federal level, Medicare has been setting the prices of hospitals and doctors for decades (see box). Over the years, Congress has introduced changes to the Medicare payment policy to manage program expenses and encourage providers to operate more efficiently, including the introduction of alternative payment models (such as responsible care organizations (ACO)) and general adjustments to Medicare rates (such as adjusting the productivity of the ACA to potential pay rates).At the state level, mandatory hospital rate-setting systems prevailed in the 1970s and 1980s, and evidence suggests that they slowed the growth of daily and per admission expenses during that time. 22 Most systems were enacted and governed by legislation that prescribed many features of the rate-setting process, which over time became increasingly complex. In the context of the growing use of managed care, the political coalition of state legislators, hospitals and employers that had allowed them in every state except Maryland 23, Medicare has also established methodologies for paying for outpatient hospital services and medical services.
Medicare uses a prospective outpatient payment system (OPPS) to pay for services provided to beneficiaries in hospital outpatient departments, such as nursing services, medical supplies, equipment and rooms, with separate payments for professional services provided during an outpatient visit. For medical services and other health professionals, Medicare payments are based on the specific service provided and on the payment rates set out in the fee schedule medical. The rate of payment for each service is based on the amount of work required to provide the service, office expenses, and professional liability insurance (PLI) costs, and is adjusted for input prices and other factors. The Relative Value Scale (RUC) Update Committee, a committee convened by the American Medical Association and specialized societies, updates the case weighting that applies to medical services, called relative value units (RVUs).
Evidence suggests that RUC proposals to update RVUs lean in favor of the most represented specialties, especially when they have common interests. 24 The main design decision for pricing policies is to establish the rate schedule on which to base rates, which determines how strict the regulation is. One option is to use the current rates set by Medicare (see the box), which have the advantage of being widely accepted and used. Since Medicare rates tend to be much lower than commercial rates and some may be below cost, prices may be set as a multiple of Medicare rates, resulting in higher prices than Medicare rates, but keeping the relative prices of Medicare intact for all services.
Proposals that set prices based on the level of service must consider how to take into account alternative payment models, which do not pay for each service individually, but for a defined set of services or for a population, and are becoming more frequent. One option is to add the prices into a price for the relevant service package defined by the alternative payment model. When this is not possible or desirable and the alternative payment model has its own mechanism for restricting prices, such as global budgets, the model may be exempt from pricing. However, if alternative payment models are excluded and other providers in the same market are subject to pricing, alternative payment models can become an avenue for providers to play, unless they are regulated with complementary approaches, such as spending growth limits or global budgets.
Another consideration for policymakers to consider is whether they should use pricing more specifically. For example, some proposals25,26 would set private prices as a percentage of Medicare rates for highly established vendor markets. Another option would be to select suppliers based on their price level, measured based on a basket of services. In addition, administrative costs are an important consideration in efforts involving targeting, as well as “extreme cases”, such as rural markets that are technically highly consolidated but may not support competition due to low demand for services due to low population density.
Given the wide variation in commercial prices30,31, the effects on revenues would be greater for some providers than for others.32 To the extent that suppliers have high prices due to high costs or quality and not just market power33, large price cuts could induce these providers to discontinue unprofitable lines of service, reduce quality or abandon them altogether. This can have adverse consequences for patient access, especially in communities with few alternatives. At the same time, since some suppliers are currently being paid relatively low prices, pricing could also result in price increases for some suppliers, which could reduce overall savings. Unlike Medicare, whose large market share attracts providers to participate, commercial payers negotiate with providers both the price and the inclusion of the network. 34,35 If prices were set administratively, hospitals and other providers could decide not to participate in health insurance plan networks with a lower enrollment if such participation would require giving up more cost-effective contracts.
Linking provider prices to Medicare rates is likely to amplify the effect of Medicare policy changes, such as the productivity adjustment of the Affordable Care Act or site-based price differences, by expanding them to commercial markets. Pricing based on Medicare rates is also likely to intensify political pressure on Congress to increase Medicare rates (or resist reductions), since provider revenues would depend to a greater extent, or potentially exclusively, on the design of Medicare payments. The increase in existing federal budgetary pressures, 36.37 Medicare-based pricing, without further reforms, would also set Medicare's relative service rates38, including differences between cognitive and procedural services and primary and specialized care services. Price limits limit the maximum price that providers can charge for a given service or set of services without setting the exact amount of payment41, 42, 43, preserving the role of market forces (and market-based policies) in influencing prices below the limits and allowing prices to continue to vary (to a certain extent) between providers and health plans. For example, Montana and Oregon limit payments to certain providers of their public employee health plan to a percentage of Medicare rates.
In Washington State, Cascade Care public option plans found in the state's ACA market include a total price limit for providers of 160% of that for Medicare (see box). This means that the total payment of participating providers cannot exceed 160% of that of Medicare, but the regulation does not apply to the prices of specific services 44. In other states, no similar measures have been taken. For example, North Carolina failed to get most of its hospitals to accept a planned contract rate of 196% of Medicare rates for services provided to the approximately 700,000 members of its state employee health plan, leading the state to abandon the effort 45. It should be noted that the proposed rates in North Carolina were lower than Montana's price limits and did not exempt certain hospitals, such as critical access hospitals or small rural hospitals, as Oregon did, from factors that could fail. This policy requires policymakers to define the approach and level of price limits. One question is whether each service should be subject to a limit or impose an aggregate limit, which would allow some services to be paid above the limit and others to be paid below the limit.
If an aggregate limit is adopted, it would also be necessary to define the set of services that are considered together under each aggregate limit. Another key decision is how widely the price limit should be applied and whether certain suppliers should be exempted. For example, the limit could include only inpatient or outpatient and inpatient hospital care, doctors and other services. In addition, the limits could apply to all providers or they could exempt those in areas where there is a relatively low supply of suppliers, such as rural areas. If desired, price limits could be combined with minimum prices for certain types of providers or services to ensure minimum payment.
Price limits can be based on (a multiple of) Medicare rates or on some measure of current commercial market rates (e.g.Basing them on current market rates allows limits to reflect differences between services and markets, beyond what Medicare already allows. Compared to Medicare-based limits, market-based limits do not fix price differences for Medicare services and may fluctuate depending on local market conditions (for example, while market-based limits also reflect the effect of differences in provider market concentration, this can be counteracted by basing the limits on a lower percentile of the commercial price distribution (one proposal suggests a multiple of the 20th percentile, for example), 49 or by limiting the limits market-based on a maximum based on a percentile of the national distribution of commercial prices. Price limits could also be applied more narrowly only to out-of-network care, 50,51 Since providers negotiate with payers about price and network inclusion52,53 limiting off-network prices can influence in-network prices and bring them closer to the out-of-network rate. The extent to which this happens depends on the bargaining capacity of the insurer and the provider, as well as on the ability and willingness of providers to reduce patient access outside the network. In Medicare Advantage, for example, where in-network prices are negotiated but out-of-network prices don't adjust to traditional Medicare rates, and providers must continue to treat out-of-network Medicare Advantage members, most negotiated prices approach Medicare rates 54.55 In environments where providers aren't required to treat out-of-network patients, limiting out-of-network pricing alone may not influence in-network pricing as much.
Limiting prices may be less harmful than setting them, because caps maintain the possibility of market forces and market-based policies influencing prices below the ceiling. This is particularly the case when the caps are set so that they are only binding for higher prices. Some proposals advocate starting with generous caps that could be reduced56, recognizing the balance between the effectiveness of the caps in reducing spending and their potential unintended consequences for the financial viability of suppliers, quality and access. Specifically, if very high limits are set, they would not be binding on many suppliers, reducing their impact on spending.
If limits are set too low, they resemble pricing, and providers and the communities they serve can be negatively affected if providers respond by reducing quality, shutting down service lines, or abandoning them completely. Providers for whom the limits are binding may find other ways to exercise their market power, such as negotiating higher prices for services for which the limits are not binding, creating alternative payment structures, or requiring additional payments not based on the services (e.g.To the extent that individual services are combined into larger service groups, service-specific price limits could be aggregated to obtain a group-level limit. Aggregation is more complex in the case of population-level payment models, such as ACO or capitation, which may require the regulation of total medical expenses. More generally speaking, combining price limits with limits on increases in total medical spending can help discourage circumvention of the limits.
If only a subset of health plans use price limits (e.g.In that case, policymakers would be pressured to increase limits to attract suppliers and plans. For example, the Cascade Care public options plan in Washington state increased price limits for providers, going from 100% of the originally proposed Medicare rates to 160% of Medicare rates (see the box). Limiting only prices outside the network may be more acceptable to providers than limiting prices within the network, since providers are free to negotiate prices if they choose to be part of the network. The application would be limited to off-network pricing, which would considerably reduce the range.
Commercial payers already often specify maximum payments for off-network services, and Congress submits certain disputes over off-network payments to arbitration that can consider historical in-network pricing benchmarks in its recent No Surprises Act. Price growth limits limit the extent to which supplier prices can increase over a defined period. Rhode Island's affordability standards (box), for example, limit the increase in supplier prices to a measure of inflation plus one percentage point 59. The primary consideration in setting limits to price growth is to select the index and methodology used to determine allowed annual price changes. Usually, these limits are linked to measures of economic growth or prices, such as gross domestic product, the consumer price index (CPI), or the drug price inflation index.
The growth limit can be set according to the selected metric or include a positive or negative factor (e.g., when calculating the limit and evaluating whether price growth has remained below the limit), policymakers can choose to use a year of data or the multi-year average, which would provide more stability but would also take longer to respond to changes. A key challenge with price growth limits is to determine if the limits should be applied service-by-service or on a more aggregated basis. The specific limits of each service limit price inflation for each service. However, providers or insurers may attempt to circumvent service-specific limits by redefining services, possibly as part of the innovation of the payment model and similar to the way in which pharmaceutical manufacturers have introduced new versions of the same drugs with different dosage quantities or routes of administration so as not to be limited by the growth limit of Medicaid drug prices.
60 One way to approach this game is to design limits that are also specific to the provider and the insurer, so that providers with market power cannot change price growth for the same service from one payer to another, 61 Another remedy would be to combine limits on price growth with limits on growth adjusted by combination of total medical expenditure in specific cases of the provider, 62 In addition, while existing price growth limits tend to limit price growth for all providers equally, the limits of price growth could be designed to restrict suppliers with higher prices rather than those with lower prices, 63 For example, the prices of high-priced suppliers could be limited to growing at the CPI minus one percentage point, while the prices of low prices suppliers were allowed to grow at the CPI plus one percentage point. Compared to other forms of price regulation, limits to price growth are less likely to harm suppliers, since they generally do not lower nominal prices. Therefore, they are less likely to negatively affect access or quality than other forms of price regulation. However, unless price growth limits vary inversely with the supplier's price (that is,A fundamental problem with price growth limits is that the cost of providing some services may increase faster than others due to factors unrelated to the market power of suppliers, such as changes in the price of certain supplies or other input costs.
The changes in global supply chains caused by the COVID-19 pandemic have had an impact on supplier inventory and on the purchase costs of medical supplies65, affecting the cost of providing care and, ultimately, may be reflected in an increase in supplier prices for affected services. The unpredictable nature of a global pandemic, for example, means that predetermined limits on price increases can unintentionally punish suppliers who are disproportionately affected by changes in input costs. These adverse consequences can be mitigated by linking price growth limits to measures of cost inflation that reflect such changes. By limiting price increases rather than price levels, price growth caps also avoid the complicated issue of determining the appropriate service price, making implementation easier.
Many proposals, for example, limit price increases to levels slightly above general inflation (the Build Back Better Act proposal to limit the price increase of Medicare drugs is a recent example in the pharmaceutical sector). Like price caps, price growth caps allow market forces to continue to operate below limits, 66.67 Compared to price setting and price caps, price growth caps are likely to be easier to apply, mainly because much less data is needed to establish benchmarks. With a global budget, providers are paid a fixed amount to treat a patient population for a defined period, instead of paying them for each service piecemeal. Because they limit the total revenues of providers, global budgets create an incentive to pay less attention, with the goal of making care delivery more efficient.
By shifting financial risk from payers to suppliers, global budgets reduce payers' uncertainty about the total cost of claims and thus facilitate payers' budgetary projections68, which can be especially useful for states, most of which cannot have a deficit. A second model, a voluntary global budget agreement, pays providers fixed amounts for defined patient populations (but not for all patients from all payers). Many of the Medicare Responsible Care Organization (ACO) programs fall into this category, as do similar contracts signed by commercial entities, such as the alternative quality contract (AQC) used by Blue Cross Blue Shield of Massachusetts. Some agreements allow suppliers to share the savings they produce when they are not on budget (also called “one-sided risk” or “upward risk”) to further encourage efficiency.
Others also make suppliers share losses that result from over-budget revenue (“bilateral risk” or “downside”). Global budgets allow policymakers to directly limit total health care spending by paying providers a lump sum for all the services they provide. This increases budget security and can help suppliers be more efficient. However, cost savings depend on how global budgets are implemented.
One of the main political decisions related to the implementation of global budgets is the process by which the initial budget is established for each participating provider (often, but not necessarily, a hospital). One approach is to base the provider's initial budget on the previous medical expenses of the patient population that the provider is likely to be responsible for. Once the supplier's overall budget for the first year is established, an administrative process usually adjusts the budget for subsequent years, which it can do by inflating budgets based on general or medical inflation. The choice of how to set the initial budget and what measure to fix future growth has implications for the pace of spending growth.
The use of historical spending preserves the increase in payments due to historically high prices or the excessive use of services in the base period that was used to set the world budget. In the same way, suppliers cannot correct any underutilization that occurred in the base period without being penalized for exceeding the budget or for being more efficient. It is also possible to implement global budgets on a voluntary basis for providers who agree to be responsible for the expenses of a group of patients. In this case, an important question is how to attribute patients to participating providers.
Many Medicare ACOs, for example, attribute patients based on the organizational affiliation of their primary care physicians. Patients can receive care from several providers, some of whom may not be part of the ACO assigned to them. This supposed “leak” represents an expense over which the ACO has no direct control, but which is detrimental to its budget. In this way, ACOs and suppliers with similar global budget agreements are encouraged to minimize leaks and maintain internal attention. The smaller the scope of their services, the greater the chance that ACOs will lose their services, which can make it difficult to coordinate care, but also encourage the reduction of wasted expenses.
Therefore, global budgets can work for both doctors' offices and hospitals. The larger the organization, the greater the financial risk it is willing and able to assume. One way to reduce leaks is to design bypass systems that encourage internal bypasses. Unlike price regulation, global budgets limit spending (which includes both price and utilization). To stay under budget and achieve savings, suppliers can restrict pricing, volume, or both.
To the extent that it is difficult to set relative prices that do not distort supplier behavior, this additional flexibility of global budgets can protect against some of the potential unforeseen consequences of price regulation. However, this same flexibility can increase concerns that the necessary services are not sufficiently provided. Global budgets create strong incentives for suppliers to reduce wasted spending. However, a key concern is that global budgets encourage volume reduction regardless of quality, which could reduce the provision of high and low value care.
As a result, most global budget contracts include performance-based compensation provisions that stipulate quality objectives and subject a certain percentage of payment upon compliance. Global budgets may also include risk adjustments to ensure that providers do not preferentially select patients with favorable risk profiles. Since global budgets transfer part of the financial risk from payers to suppliers, they can expose suppliers to major financial crises, such as the one caused by the COVID-19 pandemic, and to the uncertainty they generate. On the one hand, global budgets can cushion vendors' revenue losses resulting from volume reductions (such as elective services).
This was the case in Maryland, where hospitals could receive all of their anticipated admissions based on their fixed budgets despite the decrease in volume during the pandemic, allowing Maryland to allow compensatory price increases to partially offset volume reductions and the extension of the budget for the following year. 70 On the other hand, providers also assume the financial risk of rising care costs due to unforeseen care needs (such as those caused by a public health crisis).If it is too severe or prolonged, this may require restructuring, such as the closure of service lines or the departure of suppliers. Alternatively, it can cause policymakers to intervene and lower limits or compensate for expenses due to unpredictable events, such as a pandemic. Global budget models can be designed with these extreme cases in mind, for example, including risk mitigation provisions that share financial risk with payers in the event of a large and unexpected crisis.
Evidence on the performance of the Medicare ACOs and the Massachusetts AQC, both global budget initiatives with incentives for supplier performance, suggests that voluntary global budget contracts can achieve modest savings while maintaining or slightly increasing quality, 71,72,73,74,75,76,77. While prices are fixed in Medicare, Medicare ACOs can reduce spending by reducing volume or referring to a lower price configuration. Savings in global business budgeting models may include price reductions. For example, savings in the AQC were mainly due to reduced prices and outpatient use, and the savings exceeded participation incentive payments in later years, 78.79, suggesting the possibility of generating net savings. In one study, physician-led ACOs achieved greater savings than hospital-led ACOs, which was likely due to greater incentives to reduce wasted spending due to reduced scope of services. While there are concerns that global budgets may encourage provider consolidation, the data available so far is limited and contradictory.
81,82 An independent Maryland agency established the global budget for each hospital taking into account previous hospital revenues and updated it annually. Despite Maryland's global budget system, a fee-for-service system is used to ensure cash flow by paying hospitals throughout each year 83. In order to help hospitals meet their global budgetary objective, if the volume of hospitals decreases, prices may increase by a limited amount. Similarly, increases in volume may be accompanied by a decrease in prices. By working within these “tariff corridors”, hospitals face sanctions if they don't meet the global budget target.
Beyond cost savings, global budgets also have the advantage of providing more predictable revenues to suppliers. In the early months of the COVID-19 pandemic, when hospital admissions declined due to a decline in non-emergency procedures, Maryland's global budget program was able to establish policies to stabilize revenues and take into account the grants that Maryland hospitals received from the federal Provider Assistance Fund. 85 Spending growth goals limit increases in total health care expenditures. Goals are specified for a specific period at the level of the insurer, provider or market.
They can be mandatory or voluntary. The mere existence of a voluntary objective can help motivate providers and insurers to limit spending, probably due to their reluctance to be “reported and shamed”.In addition, each year, HPC and CHIA work together to evaluate the performance of individual payers and providers relative to the benchmark for growth in healthcare costs. Additional data is reviewed for payers and providers who do not meet the benchmark (and for some major groups of doctors and payers who are not sufficiently below the target), and those with a lower than expected performance may need to submit a performance improvement plan. The payers and providers for whom a performance improvement plan is required are publicly named.
They are required to report on the causes of the increase in their expenses, as well as a savings goal and the practical measures to achieve that goal. HPC then monitors these payers and providers for 18 months. As a last resort, fines may be imposed in case of non-compliance. Policy-design considerations for limiting spending growth are similar to those for limiting price growth.
It is important to emphasize that it is necessary to determine a growth objective as a reference point. Current efforts are based on input from stakeholders and generally limit spending increases to a measure of general or medical inflation plus or minus one or two percentage points, 89.90 although this is a balancing act. Setting growth goals that are too low can negatively affect care delivery. If values are set too high, they do little to limit spending. Another consideration is whether reference points should be voluntary or mandatory.
Voluntary efforts are less controversial, but they are also likely to be less effective at restricting spending. In any case, policymakers could consider establishing a mechanism to hold plans and suppliers accountable to objectives. The application could include a periodic performance review, which may require improvement commitments, and involve financial penalties for plans and providers that do not comply with standards. It is also necessary to decide if the spending growth objectives apply at the level of the insurer or the provider.
Limits to spending growth at the insurance level may lead insurers to focus more on reducing waste, improving benefit design, and aggressively negotiating with providers. This may be particularly true to the extent that regulations on the medical loss ratio, which require insurers to spend a fixed proportion of their premium income on the payment of medical claims, can reduce cost-containment pressures on insurers, 91 Limits to the growth of total spending at the provider level require providers to contain growth in service prices, volume or seek profitability in their delivery processes, and are closely related to global budgets, but they regulate spending growth rather than spending levels (although global budgets also tend to take into account suppliers) spending growth). Spending growth objectives may distort incentives less than alternatives, but they can also produce smaller-scale effects. This may be less harmful to health care providers and cause less opposition from them than more drastic changes, such as pricing at a low multiple of Medicare.
However, efforts that limit spending growth too drastically could be difficult to implement. For example, before it was replaced by the Access to Medicare and CHIP Reauthorization Act, Congress annually rescinded the Medicare sustainable growth rate (SGR) formula because doctors argued that it would have reduced doctors' fees too much. 93 In addition, policies that limit spending growth do not directly or necessarily limit the prices of commercial providers, who often double Medicare rates and are widely considered to be the root cause of high spending on commercial insured persons and evidence of a decline in the health care market. To implement the policy options discussed in this document, specific legislative or regulatory measures are required.
Usually, that means passing legislation in two houses of Congress or in a state legislature and getting the support of the president or governor. In some cases, executive action could be used to implement more specific changes for a subset of markets or health insurance plans. The options available vary depending on whether the policy is adopted at the state or federal level and whether the policy applies to payers or providers. In addition, once adopted, implementation will generally require ongoing monitoring and, possibly, the collection and analysis of new data. Direct price regulation for private payers or the imposition of a global budget or a spending growth goal would generally require legislation at the federal or state level.
In some cases, depending on the policy and the state, states could implement new regulations without new legislation, such as the way in which Rhode Island adopted limits on price growth for state-regulated commercial insurers. The Employee Retirement Income Security Act (ERISA) rescinds state regulation of most self-funded health plans, which include 64% of workers covered by employer-sponsored insurance. Therefore, in the absence of new federal legislation, states generally cannot impose requirements on these plans and would instead have to rely on voluntary participation 94. At the federal level, legislators can impose requirements on self-funded health plans by modifying ERISA, although this route has historically been used to expand coverage, rather than focusing on health care spending or pricing. States can implement the policies we analyze for fully insured plans, including plans from ACA marketplaces or health insurance plans for their own public employees. For example, states could take advantage of or expand their insurance department's rate review authority to ensure that increases in health plan premiums are not inconsistent with limits to price growth.
95 In addition, price limits could be established that apply to a subset of insurance markets or plans under state supervision. Instead of adopting policies that impose requirements on plans, policymakers could regulate the way suppliers are paid, which is not subject to the preference of ERISA 96. While this can be done on a state-by-state basis, if the policy includes the prices paid by Medicare patients, under current law, it would generally require an exemption from Section 1814 (b) of the CMS Social Security Act that exempts relevant providers from Medicare payment systems. Another way to adopt payment reforms that include Medicare and Medicaid is to set up a demonstration through the Center for Medicare and Medicaid Innovation (CMMI). Alternatively, federal and state tax codes could be amended to encourage payers and providers to adopt price reduction policies.
For example, tax benefits could be extended to hospitals or other providers that participate in voluntary global budget agreements. Following the adoption of any of the policies discussed in this document, continuous monitoring would be important to ensure provider solvency, patient access and quality, and to ensure that law enforcement agencies have adequate resources. Whether the policy was adopted at the state or federal level, states are likely to play a role in oversight and law enforcement, since they oversee fully insured plans. This could involve the establishment of a new regulatory body, an office within an existing agency, or a quasi-governmental entity that facilitates the participation of interested parties.
The extent to which monitoring and enforcement are complicated by the proliferation of alternative payment models depends on the specific policy option adopted. By regulating the total cost of care, global budgets can completely eliminate the need for alternative (additional) payment models. Spending growth objectives can be defined in such a way that they are broad enough to encompass any payment associated with alternative payment models. However, by contributing to the redefinition of services and facilitating the payment of additional claims (such as quality bonuses), alternative payment models could be a way to circumvent price regulation by providers.
To counteract this, compliance initiatives could include monitoring total and non-claims spending and defining triggers for compliance measures. Current efforts at the state level to restrict healthcare prices have used several monitoring and compliance structures. For example, Massachusetts created an independent state agency, the Massachusetts Health Policy Commission, which is overseen by an 11-member board of commissioners with specific expertise defined by law, and appointed by several government officials. In Rhode Island, the Office of the Health Insurance Commissioner oversees state initiatives.
In California, the legislation being considered would establish the Office of Health Care Affordability within the Department of Health Care Access and Information. Any or all of them could serve as examples in the future. Lower spending could translate into lower premiums and reduced cost-sharing, especially if insurers are encouraged or required to transfer savings to consumers. For employers that offer health insurance, lower health care prices would ease pressure to increase premiums or share costs, could generate higher wage growth and increase full-time employment 97, which could result in increased taxable income, leading to higher federal revenues and state.
Lower prices would also reduce healthcare spending for federal and state employees. At the same time, it is very likely that the reduction in commercial prices will result in a reduction in supplier revenues, which would undoubtedly face strong opposition from the sector and could negatively affect access and quality of health care. By reducing the incomes of some people employed in the health care sector, lower commercial prices could also have a negative impact on tax revenues, even if they generate overall savings. One option to counteract any negative impact is to gradually introduce reforms to the system of payment to suppliers, while monitoring the effects on access, quality and the labor market and preserving the ability to adjust the benchmarks upwards or the low one.
Health care prices in the United States are high, highly variable, and are a key factor in increasing healthcare spending. Market-based efforts have largely failed to restrict prices significantly, leading policymakers and other stakeholders to seek alternatives, such as price regulation, global budgets, and spending growth targets. However, these measures are controversial and raise questions about the appropriate role of the government in regulating healthcare prices and spending. In this paper, we analyze several policy options that can limit healthcare spending, primarily by putting downward pressure on provider prices.
All of the options discussed have advantages and disadvantages. In particular, the potential magnitude of savings tends to be greater the more broadly and rigorously policies are applied. However, so is the potential for adverse consequences, including reduced access and quality. Policymakers can find the desired balance between these outcomes if they pay special attention to the design considerations we analyze. The reforms discussed in this document have been adopted to varying degrees by some states.
These experiences serve as examples of how different approaches can work in practice, particularly if states decide to carry out such changes in the absence of federal legislation. The independent source for health policy research, surveys and news, KFF is a nonprofit organization based in San Francisco, California. The hospital or outpatient center: the “typical price” of this service in this place is the average price, that is, the “price for patients intermediates”. However, the ACA and other market-based efforts have failed to significantly restrict pricing and other underlying factors of healthcare spending.
Evidence suggests that Rhode Island's standard set of affordability policies was associated with lower spending growth on fee-for-service plans compared to other states92, although it's difficult to differentiate the relative impact of spending growth goals compared to other provisions, and lower prices suggest that price controls may have played an important role. The amounts paid by all patients who received that service in the county are combined to calculate the median and the low and high prices. However, providers or insurers may attempt to circumvent service-specific limits by redefining services, possibly as part of the innovation of payment models and similar to the way in which pharmaceutical manufacturers have introduced new versions of the same drugs with different doses or routes of administration so as not to be limited by the limit on increasing the price of drugs established by Medicaid. The aging of the population, the labor pressure that drives rising prices and the arrival of new high-cost prescription drugs on the market are expected to contribute to the growth in health spending.
For example, states could take advantage of or expand their insurance department's rate review authority to ensure that increases in health plan premiums are not incompatible with limits on price increases. Moriates is the director of the Caring Wisely initiative at the UCSF Center for Healthcare Value and the director of implementation initiatives for Costs of Care.
