A Strategy for Controlling Healthcare Costs

If there’s one thing we can all agree on, it’s that healthcare is getting seriously expensive. The numbers support that. According to the Pew Research Center, “A majority of Americans (83%), regardless of their income, say the high cost of medical treatments makes quality care unaffordable.”

That’s a huge problem, and one that most of us would like to see addressed. But controlling the costs of healthcare is a complex task. There are numerous factors that increase costs – some we can control, and others we cannot. This presents policymakers with a multitude of issues to address when attempting to deliver on the public’s needs.

Fortunately, a new report from researchers at the Richard M. Fairbanks School of Public Health at IUPUI aims to help build steps toward statewide solutions. It contains an actionable framework that Indiana leaders can use to address rising healthcare costs.

The report was titled Addressing Factors that Affect Health Care Costs: Recommendations for Indiana Stakeholders. It was designed to help move Indiana toward a statewide strategic plan to lower health care costs, especially through coordinated efforts to improve health outcomes. Researchers consulted with a range of experts, stakeholders, and incorporated public demands for policy changes into a consolidated outline of 16 different factors that affect rising health care costs.

“A shared understanding of what determines health care costs is the first step for stakeholders to work together. We have developed a long list of recommendations that we believe stakeholders collectively need to implement to make a difference. The right portfolio of actions will create lasting change in Indiana,” said Nir Menachemi, Richard M. Fairbanks Endowed Chair, professor and chair of the school's Department of Health Policy and Management, and one of the report’s lead authors.

16 Factors that Influence Cost

16 factors that could influence both the overall costs of care and patient outcomes:

Market and Local Activities

1. Provider (hospital and physician) and payer concentration
2. Employer-provider direct price negotiations
3. Use of narrow and tiered provider networks by payers
4. Public health activities

Payment Issues

5. Accountable Care payment models
6. Bundled payment models
7. All-payer rate setting (caps on prices)
8. Cost-shifting (providers charge private payers more in response to shortfalls in public payments)
9. Reference-based pricing (RBP)

Regulatory Approaches

10. Regulations aimed at increasing competition in a market
11. Taxing the accrued profits of nonprofit hospitals to discourage price increases

Physician and Clinical Services

12. Physician-facing price transparency tools
13. Increased use of end-of-life services
14. Utilization of low-value and wasteful health care services

Consumer Focused

15. Use of high-deductible health plans (HDHPs)
16. Consumer-facing price and quality transparency tools

Recommendations for Action

Authors noted that a true pathway toward healthcare cost reduction will require a blend of several strategies to address the 16 factors. “There is no magic bullet,” they said. A portfolio of activities will be needed.

• Market and Local Activities – Stakeholders in Indiana should implement an all-payer claims database for improved transparency, increase primary care practitioners, leverage technology like telemedicine to increase competition, and use narrow or tiered provider networks. Also, employers should explore ways to negotiate directly with providers and implement pilot projects. Increased investments in public health services will also reduce costs.
• Payment Issues – Stakeholders should move towards greater use of value-based payment models among commercial payers. And self-insured employers and traditional insurers should experiment with reference-based pricing approaches that target cost reductions in non-emergency services.
• Regulatory Approaches – Stakeholders should examine ways to effectively increase competition in Indiana for payers and providers through more research.
• Physician and Clinical Services – Stakeholders should pursue research to determine if physician-facing price transparency tools could reduce costs of care; increase the use of end-of-life services, including hospice; and launch a concerted effort to reduce low-value care by raising awareness among physicians and patients.
• Consumer-Focused Activities – Stakeholders should work to swiftly address the issue of less preventive service utilization for patients with high-deductible health plans.

What’s Not Recommended?

The report also contained several items that experts said they would not recommend using to try and control costs, including:

• Implementing price caps and/or an all-payer rate setting
• Taxing accrued profits of nonprofit hospitals to discourage price increases
• Taking action regarding cost-shifting
• Expanding the use of consumer-facing price transparency tools

A Long Road Ahead

Implementing any of these recommendations will likely be multistep processes in their own respective ways. However, having such a heavily research-based outline for what could be effective in reducing healthcare costs is a great resource for Indiana leaders as they begin.

In the end, it’s clear the issue of increasing healthcare costs is not really one problem, but many. So, we’re going to have to get creative and come up with just as many solutions to fight it.

By Nick Dmitrovich with data from the Richard M. Fairbanks School of Public Health at IUPUI