Medical services are expensive. There is no getting around it. The average family health insurance premium in the US is approaching $20,000. By one estimate, average family premiums could rise to 100 percent of US median household income by 2033 if trends continue. What is more troubling is that there is considerable evidence that nearly one-third of health spending is for care with little or no value. But efforts to define and eliminate waste have proven elusive. Meanwhile, growth in medical spending, which has largely been driven by constantly rising prices, is squeezing public and private resources that could be devoted to other priorities. It has caused wage growth for many to stagnate, and it has led to constrained state and local spending for education, infrastructure, and other priorities.

A diverse group of stakeholders including providers, payers, employers, and policy experts met on March 14 in Washington, DC, at an event sponsored by the Brandeis University Health Industry Forum to discuss what should be done about the continued growth in US health spending. This post highlights some of the key takeaways from the meeting. 

 

Most Stakeholders Are Conflicted About Controlling Health Spending

While governments have taken strong steps to constrain spending in the programs for which they are responsible, other major participants that shoulder the cost (employers, private insurers, and patients) seem reluctant or unable to create changes that could significantly lower spending. Some suggest that the slower rate of US health spending growth over the past decade may have blunted their enthusiasm for tackling this difficult problem. Many employers seem reticent to put controls on employee health benefits, other than some who have added high-deductible plans. Consumers bridle at attempts to limit their access to treatments, and the public in general appears conflicted about health spending. Household surveys find serious concerns about health care prices and out-of-pocket spending. However, there is less support for efforts to directly control total health spending, which is viewed as potentially reducing people's health benefits or threatening the quality of care provided. 

 

It Is Unclear Whether Market Forces Can Moderate Spending

Despite a recent (post-2010) slowdown, spending growth is beginning to accelerate again, led by increasing prices for most health services. The truth is that health care is hugely profitable for a wide variety of actors. US hospitals earned their highest profits ever in 2016, the world's largest pharmaceutical companies generate annual profit margins of 15 percent to 20 percent of revenue, and the stock prices of major health insurance companies have grown at roughly three times the rate of the Standard and Poor's 500 over the past five years.

While many large health care systems have prospered, a growing number of independent and lower-cost community providers are struggling. Consumers are paying more out of pocket, and health insurance premiums have become unaffordable for many lower- and middle-income Americans. As a nation, we believe in the power of markets. Regulation of prices and spending, the norm in most other countries, has not been seriously considered by US policy makers in decades. But health care suffers from numerous forms of market failure, led by the consolidation of major providers, health plans, manufacturers, and distributors of health care products. Increasingly, markets for medical care lack real competition because of this consolidation. In such markets, even if health care becomes more efficient, the benefits are not passed on to consumers in the form of lower prices.

Nevertheless, it may not be time to give up on competition. Markets could be improved with stronger financial incentives for individuals to select higher-value providers and services and by making more information available to patients about the value of alternative treatments and sites of care. Some event participants advocated for greater use of tiered benefit design and reference pricing to make the cost differences of health care choices apparent to consumers. Others voiced skepticism about such an approach, arguing that only a small proportion of consumers review available price and quality data prior to accessing services and that it is unreasonable to ask individuals to "shop" when they are ill and physically and emotionally vulnerable. But many participants (including the authors) supported continued development and improvement of consumer incentive models.

 

It May Be Time To Reconsider Targeted Regulation

Although few policy makers have indicated an appetite for broad-based price regulation such as Maryland's hospital rate setting system, there does seem to be some interest in more targeted regulation to address excess pricing. For example, some large health systems command prices well in excess of 300 percent of Medicare rates, and drug makers with new products that lack competition have no pricing limits. The federal government, which sets prices for most medical services under Medicare, is prohibited by law from negotiating pharmaceutical prices.

How would targeted price regulation work? One example comes from the Medicare Advantage (MA) program in which providers outside of a health plan's network are required to accept Medicare payment rates for treating Medicare beneficiaries. As a result, average hospital and physician prices paid by MA plans are very close to Medicare's administered prices. Instead of competing based on provider price discounts, MA plans must compete based on service quality, efficiency of provider networks, and effectiveness of medical management.

Options for limited price regulation could take the form of price ceilings on commercial plan services based on a percentage of Medicare rates—say 175 percent. Such ceilings would need to be phased in over time to limit disruptions to high-price health systems. Regulators could also impose limits on prices of "monopoly services" along the lines of a public utility model with rates sufficient to cover the cost of services. 

 

Employers Must Play A Stronger Role In Controlling Health Spending

If there were to be a serious effort to control health spending, who would lead the charge? Employers and employees have borne a large share of health spending growth driven by high commercial prices, as provider payments from public programs are constrained. Despite rising prices, employer activism has been dampened by moderate premium growth (in part, because a large portion of annual increases have been shifted to employees) and because labor markets have tightened with a strong economy. Employers played a major role in the cost-containment efforts of the 1990s—a period in which health spending slowed considerably. If health care spending is to be limited in the future without major government regulation, employers must take a far more aggressive role. This could include increasing the use of benefit design that rewards consumers for selecting cost-effective providers and therapies. A number of companies, such as Walmart and Boeing, have engaged in such actions, and more seem to be joining them.

Medical professionals are another group that must play a role in controlling health care spending growth. Physicians order the vast majority of medical services through their "power of the pen" and have the trust of patients and the public. Physicians have become increasingly concerned about the financial burden high health care costs place on their patients, and a number of physician societies have begun to advocate for changes. The American Board of Internal Medicine is leading an effort to reduce the use of low-value care through its Choosing Wisely campaign. Other groups, including the American Society of Clinical Oncology and the American College of Physicians, have pushed for more affordable drugs. 

 

Changing Consumer Behavior Is Also Critical—But Challenging

Consumer engagement is also important for controlling health spending. But the discussion is more challenging when consumers want affordable health care but resist any restrictions on access to providers and services. There has been considerable push back by consumer groups (often justified) about the level of access and quality offered by limited provider networks that promise lower prices and higher-value health care services. There are diverging views about the efficacy of efforts to make consumers "shop" more effectively for medical services. A strong body of research has shown that high-cost sharing causes consumers to reduce their use of services, but with equal reductions in both effective and ineffective care. While more information about the cost of services is available today, it still is limited. Data about the quality and value of providers and services are still sorely lacking. Some believe consumer choice is best enabled when individuals make their annual health benefits elections through a defined sponsor contribution and a structured series of choices that reflect different premiums and benefits options. 

 

State Governments Need To Take On Expanded Roles

Historically, governments have focused primarily on their own programs (for example, Medicare and Medicaid) instead of on total health care spending, which has led to a growing gap between what government and private insurers pay for comparable services. This is why the state of Massachusetts has focused on limiting total spending—not just what government pays. The Massachusetts plan relies on a statewide spending growth target equal to the growth in the state's gross domestic product (currently 3.1 percent). The state established two semi-independent commissions to review the annual growth in state health care spending and to recommend to state and federal regulatory bodies actions that would prevent providers and payers from implementing activities that are likely to increase spending. Since the state law was enacted in 2012, the growth in total health spending in Massachusetts, which had been among the highest in the nation, fell to among the lowest. Other states appear interested in the success of Massachusetts, and several, including Connecticut and California, are developing programs to limit total health spending in their own states. 

 

Continuing National And State-Level Dialogues

Where should we go from here? For starters, a more serious dialogue about the implications of continued growth in health care spending and the opportunity cost of inaction is needed. While this dialogue should occur on a national level, we believe it is likely to have more resonance at the state level.

The negative implications of high and uncontrolled health spending are affecting sections of the country and industries very differently. The successes of public-sector strategies in Maryland and Massachusetts and private-sector initiatives at companies such as Walmart and Boeing give us hope that targeted actions by determined purchasers and policy makers can work and will be expanded in the future.

 

Answer the following questions:

1. Do you agree that the United States has a cost problem related to healthcare?

2. If so, what is the best step to help control cost?

3. What should be the future of healthcare cost accounting?  What role should it play going forward?