We hope you had some time to rest and relax this summer. In the meantime, we’ve been reading through the latest studies and news on health care spending, making sure you’ll be caught up and prepared for the post-Labor Day work deluge. Have a question or topic, or favorite book from your summer reading list you’d like us include in the conversation? Drop us a line or tweet using #GoingBelowTheSurface.

Digging Deeper

This month, we dove into the weeds of commercial hospital prices, with critical questions about transparency and the policy implications of the growing gulf between what Medicare will pay the health system compared to the far larger bills for commercial insurance. Research in the Journal of the American Medical Association and Health Affairs explore these ideas:

A Commercial Difference

Commercial hospital prices are a black box relative to Medicare: a lack of transparency makes specifics hard to come by, but – in aggregate – costs are vastly higher. Employers pay hospitals twice as much as Medicare for inpatient services and three times as much for outpatient services. The prices paid by commercial insurers to hospitals have driven growth in overall health care costs, but utilization rates have remained flat or even declined. A study recently published in the Journal of the American Medical Association discusses how hospital prices are responsible for a large proportion of overall commercial insurance premium growth, and how states and employers are pushing for more transparency on this issue.

As awareness has increased regarding the role of commercial hospital prices in driving health care growth, states and employers have started to take action. In Rhode Island, the Office of the Health Insurance Commissioner used its regulatory authority to limit further increases in hospital prices to the Consumer Price Index, which led to significant reductions in insurance premium growth rates.

Why It Matters: The JAMA piece makes two truths clear. The first is that hospitals generate vastly more revenue from services provided via commercial insurers than Medicare, a fact that is likely to drive commentary about emerging Medicare-for-All plans. The second is a broader recognition of the role that hospital prices play in increasing premiums, a phenomenon often misattributed to smaller elements of the health care system.

Does Spending Less on Hospitals Harm Quality?

In a new blog post on Health Affairs, authors Michael E. Chernew and Richard G. Frank examine a related question: would an era of government price-setting for hospitals – one that has already begun, in small ways in the states – see lower costs but adversely impact health care quality?

Chernew and Frank suggest that evidence to-date, generally comparing different geographies with different costs of care, has not been designed to expose a link between price differences and health outcomes. Existing literature focuses largely on spending alone, which creates limitations when trying to examine the causal impact of price changes on quality. The authors suggest that the quality impact may be less when the prices for clinical services inflated by market power fall through increased competition, as compared with setting prices closer to efficient levels of cost.

Why It Matters: As we continue to see proposals aimed at reducing the prices in the commercial sector, it is imperative that we understand the weight of lowering prices on health care quality. Chernew and Frank conclude that changes to how hospitals are paid should be done in a way that “avoids large disruptions” and allows for fine-tuning of costs to ensure both quality and system sustainability.

What We’re Reading

As the summer begins to wind down, it’s time for us to put down our trashy beach reads and turn back to compelling journal articles. This month, we’ve picked two articles that look at lowering health care costs without lowering quality. A third article considers the value of staying alive long enough for a cure to be developed.

  • What Are the Potential Savings From Steering Patients to Lower-Priced Providers? A Static Analysis
    Desai SM, Hatfield LA, Hicks AL, Chernew ME, Mehrotra A, Sinaiko AD. July 11, 2019, The American Journal of Managed Care
    Researchers examined three services – laboratory tests, imaging services, and durable medical equipment – that, in addition to medicines, “could be good candidates for shifting to lower-priced options.” By shifting patients from higher to lower priced services, their analysis suggested savings of roughly 11% of total outpatient spending. The study also prompts a larger question: steering patients to providers where they pay lower prices could reduce health care spending, but how many and which types of services fit into this “steerable” category?
  • Health Care Spending, Utilization, and Quality 8 Years into Global Payment
    Song Z, Ji Y, Safran DG, Chernew ME. July 18, 2019, The New England Journal of Medicine
    An examination of changes in spending, utilization and quality through eight years of the Alternative Quality Contract of Blue Cross Blue Shield (BCBS) of Massachusetts, a population-based payment model, suggest that an accountable care organization model “with both financial rewards and penalties, including quality incentives, may offer a framework for slowing the growth in medical spending without sacrificing the quality of care for patients.”
  • How Does Option Value Affect the Potential Cost-Effectiveness of a Treatment? The Case of Ipilimumab for Metastatic Melanoma
    Li M, Basu A, Bennette C, Veenstra D, Garrison LP. July 2019, Value in Health
    Using a cancer treatment as a case study, the authors consider an aspect of value that is not usually assessed: the value of enabling a patient to stay alive long enough for a cure or improved treatment to be developed.

Dialogues on Health Care Spending

Health spending remains a hot topic, and that’s why seats are going quickly for a Sept. 11 conference on the issue. Health spending isn’t just generating buzz inside the Beltway—it’s also gaining traction on both the regional and international levels.

  • Register Now for “Health Spending: Moving From Theory to Action”: Join Health Affairs, the National Pharmaceutical Council and several partners of the Going Below The Surface Forum on September 11 in Washington, DC, for an important event, “Health Spending: Moving From Theory to Action.” The event will address the pressures presented by increasing health costs on individuals, employers, and government; strategies among payers and others to promote cost effective care; and efforts currently underway to bring costs under control. Space is limited — register online today!
  • The Best Ideas Don’t Always Come From Washington: Writing in Chain Drug Review, National Pharmaceutical Council President and CEO Dan Leonard explores health care concerns and ideas for improvement discussed at recent regional town halls hosted by Going Below The Surface Forum partners Healthcare Leadership Council and NPC.
  • The Relationship Between Health Spending and Social Spending in High-Income Countries: How Does the U.S. Compare?: There has been a lot of debate over how much other countries spend on social programs compared to the U.S., and how it impacts the health of their citizens. This study, part of the “Considering Health Spending” series in Health Affairs, finds that countries that spend more on social programs also spend more on health care. (Note: The series is funded by the National Pharmaceutical Council and Anthem, Inc.)

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