CONFRONTING COSTS Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System The Commonwealth Fund Commission on a High Performance Health System January 2013 t h e c o m m o n w e a lt h f u n d c o m m i s s i o n o n a h i g h p e r f o r m a n c e h e a lt h s y s t e m Membership Gregory P. Poulsen, M.B.A. Senior Vice President Stuart Guterman David Blumenthal, M.D., M.P.P. Intermountain Health Care Executive Director Chair of the Commission Vice President for Payment President Neil R. Powe, M.D., M.P.H., M.B.A. and System Reform The Commonwealth Fund Chief, Medical Services The Commonwealth Fund San Francisco General Hospital Maureen Bisognano, M.Sc. Constance B. Wofsy Distinguished Professor Cathy Schoen, M.S. President and Chief Executive Officer and Vice-Chair of Medicine Research Director Institute for Healthcare Improvement University of California, San Francisco Senior Vice President for Policy, Research, and Evaluation Sandra Bruce, M.S. Louise Y. Probst, R.N., M.B.A. The Commonwealth Fund President and Chief Executive Officer Executive Director Resurrection Health Care St. Louis Area Business Health Coalition Rachel Nuzum, M.P.H. Senior Policy Director Christine K. Cassel, M.D. Martín J. Sepúlveda, M.D., FACP Vice President for Federal President and Chief Executive Officer IBM Fellow and Vice President and State Health Policy American Board of Internal Medicine Integrated Health Services The Commonwealth Fund and ABIM Foundation IBM Corporation Michael Chernew, Ph.D. David A. Share, M.D., M.P.H. Professor Vice President Department of Health Care Policy Value Partnerships Harvard Medical School Blue Cross Blue Shield of Michigan John M. Colmers, M.P.H. Glenn D. Steele, Jr., M.D., Ph.D. Vice President President and Chief Executive Officer Health Care Transformation and Geisinger Health System Strategic Planning Johns Hopkins Medicine Alan R. Weil, J.D., M.P.P. Executive Director Patricia Gabow, M.D. National Academy for State Health Policy Chief Executive Officer Denver Health George C. Halvorson Chairman and Chief Executive Officer Kaiser Foundation Health Plan, Inc. Jon M. Kingsdale, Ph.D. Managing Director Wakely Consulting Group The Commonwealth Fund, among the first private foundations started by a woman philanthropist—Anna M. Harkness—was established in 1918 with the broad charge to enhance the common good. The mission of The Commonwealth Fund is to promote a high performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society’s most vulnerable, including low-income people, the uninsured, minority Americans, young children, and elderly adults. The Fund carries out this mandate by supporting independent research on health care issues and making grants to improve health care practice and policy. An international program in health policy is designed to stimulate innovative policies and practices in the United States and other industrialized countries. CONFRONTING COSTS Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System The Commonwealth Fund Commission on a High Performance Health System January 2013 ABSTRACT: The Commonwealth Fund Commission on a High Performance Health System, to hold increases in national health expenditures to no more than long-term economic growth, recommends a set of synergistic provider payment reforms, consumer incentives, and system- wide reforms to confront costs while improving health system performance. This approach could slow spending by a cumulative $2 trillion by 2023—if begun now with public and private payers acting in concert. Payment reforms would: provide incentives to innovate and partici- pate in accountable care systems; strengthen primary care and patient-centered teams; and spread reforms across Medicare, Medicaid, and private insurers. With better consumer informa- tion and incentives to choose wisely and lower provider administrative costs, incentives would be further aligned to improve population health at more affordable cost. Savings could be substantial for families, businesses, and government at all levels and would more than offset the costs of repealing scheduled Medicare cuts in physician fees. This report was prepared for The Commonwealth Fund Commission on a High Performance Health System by Cathy Schoen, Stuart Guterman, Mark Zezza, and Melinda Abrams. Support for this research was provided by The Commonwealth Fund. The views presented here are those of the authors and not necessarily those of The Commonwealth Fund or its directors, officers, or staff. To learn more about new publications when they become available, visit the Fund’s Web site and register to receive e-mail alerts. Commonwealth Fund pub. no. 1653. CONTENTS Preface.......................................................................................................................................................................................................................................6 Executive Summary..............................................................................................................................................................................................................7 Rising Health Care Costs: A National Concern......................................................................................................................................................... 13 Factors Driving Up Health Care Spending................................................................................................................................................................ 16 Criteria for Stabilizing Health Spending Growth and Improving System Performance........................................................................... 18 Getting Ahead of the Curve: Policies to Stabilize Health Care Spending While Improving System Performance.......................... 22 Estimating the Impact of the Policy Options........................................................................................................................................................... 31 The Potential Impact of the Commission’s Policy Options.................................................................................................................................. 32 Conclusions.......................................................................................................................................................................................................................... 35 Notes....................................................................................................................................................................................................................................... 38 LIST OF EXHIBITS Exhibit ES-1 Synergistic Strategy: Potential Cumulative Savings Compared with Current Baseline Projection, 2013–2023 Exhibit ES-2 Projected National Health Expenditures (NHE), 2013–2023: Potential Impact of Synergistic Strategy Exhibit ES-3 Cumulative Net Impacts of Payment, Engaging Consumers, and Systemwide Policies, 2013–2023 Exhibit 1 International Comparison of Spending on Health, 1980–2010 Exhibit 2 Medicare Spending per Enrollee Projected to Increase More Slowly Than Private Insurance Spending per Enrollee and GDP per Capita Exhibit 3 Premiums Rising Faster Than Inflation and Wages Exhibit 4 Projected U.S. National Health Expenditures (NHE) by Source, 2013–2023 Exhibit 5 High Performance Health System Criteria for Developing Options to Stabilize Spending Growth Exhibit 6 Synergistic Strategy: Potential Cumulative Savings Compared with Current Baseline Projection, 2013–2023 Exhibit 7 Synergistic Strategy: Cumulative Savings, 2013–2023 Exhibit 8 Projected National Health Expenditures (NHE), 2013–2023: Potential Impact of Synergistic Strategy Exhibit 9 Impact of Synergistic Strategy on Projected Annual Hospital and Physician Spending, 2013–2023 ACKNOWLEDGMENTS The Commonwealth Fund Commission on a High Performance Health System set the goal of stabilizing national health spending growth to no more than long-term economic growth and guided the framework, strategic approach, and key policies that could achieve this goal while also improving health system performance. The report was prepared for the Commission, with review and direction by Commission leadership and members, by Cathy Schoen, Commonwealth Fund senior vice president, Stuart Guterman, Fund vice president and Commission executive director, Mark Zezza, Fund senior program officer, and Melinda Abrams, Fund vice president. On behalf of the Commission, the Fund contracted with the Actuarial Research Corporation (ARC) to model policy specifications that illus- trate the potential of a synergistic approach to reducing cost growth. Jim Mays led the ARC team in preparing estimates. Editorial and production support was provided by The Commonwealth Fund’s Chris Hollander, Martha Hostetter, Paul Frame, and Suzanne Augustyn. PREFACE Growth in public and private health spending is putting increasing pressure not only on federal, state, and local budgets but on business and families as well. Moreover, the U.S. health system falls short of producing the quality and outcomes that should be possible given the current level of spending. To address these systemwide issues, The Commonwealth Fund Commission on a High Performance Health System presents Confronting Costs: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System. This report offers a comprehensive set of policies aimed at holding health spending growth to no more than the rate of long-term growth in the economy while improving health care quality and outcomes. The Commission recommends a synergistic strategy that reflects the need to address health spending in both the public and private sectors, and to involve providers, consumers, and payers in improving system performance. To illustrate the potential of concerted action to accomplish these goals, we provide estimates of the impact of poli- cies that follow this approach. This analysis indicates it would be possible to reduce projected spending by a cumulative $2 trillion over the next 10 years, with substantial savings accruing to the federal government, state and local governments, private employers, and households. These impacts are contingent on timely enactment of the policies, their effective implementation, and coordinated efforts across the public and private sectors to achieve the goals of better care, better health, and lower costs. The Commission on a High Performance Health System offers these recommendations knowing that they will not be easy to enact and implement. Inaction, however, will only exacerbate the problems we currently face. Putting off difficult solutions, or pursuing policies that offer short-term solutions without addressing the underlying fac- tors that drive health spending growth, will only make it more difficult to deal with these factors in the future and will threaten the viability of the health care system. The Commission therefore urges that policymakers act now to move toward a high performance health system. David Blumenthal, M.D., M.P.P. Stuart Guterman ChairmanExecutive Director The Commonwealth Fund Commission on a High Performance Health System 6 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System EXECUTIVE SUMMARY The policies described below should produce substantial reductions in health spending. But if Health spending as a share of U.S. gross domestic spending growth targets are not met, further action product (GDP) has climbed steadily over the past should be taken to address areas in which spending half-century. Today, it constitutes 18 percent of growth is excessive. This should include more aggres- GDP, up from 14 percent in 2000 and 5 percent in sive implementation of those policies, focusing par- 1960, and we are well on our way to 21 percent by ticularly on both geographic areas and types of ser- 2023, based on current projections. This increased vices that are found to be drivers of excessive spend- dedication of economic resources to the health sec- ing and spending growth. The establishment of tar- tor, however, is not yielding commensurate value in gets, then, can serve both as a metric to guide policy terms of improving population health or patients’ development and as an incentive for all involved par- experiences with care. ties to act to make them effective. On average, the U.S. spends twice as much To show how future health spending growth on health care per capita, and 50 percent more as a could be held to a national target and stabilized share of GDP, as other industrialized nations do. while moving toward a high performance health care And yet we fail to reap the benefits of longer lives, system, this report lays out a synergistic strategy rely- lower infant mortality, universal access, and quality ing on three broad thrusts: of care realized by many other high-income coun- tries. There is broad evidence, as well, that much of • Provider payment reforms to promote value and that excess spending is wasteful. Stabilizing health accelerate health care delivery system innovation. spending and targeting it in ways that ensure access • Policies to expand options and encourage high- to care and improve health outcomes would free up value choices by consumers armed with better billions of dollars annually for critically needed eco- information about the quality and cost of care. nomic and social investments—both public and pri- • Systemwide action to improve how health vate—as well as higher wages for workers. care markets function, including reducing In this report, The Commonwealth Fund administrative costs and setting national and Commission on a High Performance Health System regional targets for spending growth. endorses the goal of holding future growth in total health spending to a rate no greater than that of The set of policies the Commission has iden- long-term growth in GDP, while simultaneously tified in these three areas would interact with each moving toward a high performance health care sys- other in mutually supportive ways to address market tem. This is an ambitious goal, to be sure, particu- forces that contribute to high and rising costs but are larly given our aging population and the commit- failing to produce value. By applying these policies ment to access for all. But with such a high propor- collectively—with the public and private sectors tion of our economic resources already devoted to working in concert—the nation would be able to health care, and with abundant evidence that we can benefit from their synergy. Analysis of specific poli- do better, such a target should be achievable. It is cies consistent with these approaches indicates that also a key to enabling broader economic growth and they could slow growth in national spending by a a more affordable health care system for businesses, cumulative $2 trillion through 2023. Achieving families, and federal, state, and local governments. www.commonwealthfund.org7 these potential savings depends on starting now and 3. Bundle hospital payments to focus on total costs and acting together. patient outcomes. Accelerate the implementation of provider reimbursement approaches in Strategic Approach which a single payment is made for all services This report translates these three broad thrusts into provided during an episode of care involving a 10 policies to illustrate our comprehensive approach hospital stay, including postacute services for to stabilizing spending growth. The policies reinforce specified procedures and conditions, for patients each other to address concerns about both public in Medicare, Medicaid, other public programs, and private health care costs while also improving and private plans participating in the new health health outcomes and patients’ care experiences. insurance exchanges. 4. Adopt payment reforms across markets, with public Provider Payment Reforms to Promote Value and and private payers working in concert. Align Accelerate Delivery System Innovation: Create incentives to coordinate care, lower costs, and payment incentives across public and private improve outcomes. payers to enable and support care systems that 1. Revise Medicare physician fees and methods of are more accountable for providing high-value updating payment so that we pay for value. Replace care. Require private plans participating in health Medicare’s current system for determining insurance exchanges to incorporate alternative physician fees (and the resulting reductions payment approaches to support delivery system called for under current law) by holding fees innovation, such as payment for primary care constant at their current level, while adjusting medical homes, care teams, bundled payment relative payment rates for services that meet for episodes involving hospital care, and shared specified criteria as “overpriced.” Provide savings or global payment arrangements with increases in future payments only for providers networks of providers. Encourage private that participate in payment and delivery insurance plans in each state to negotiate health system innovations that are accountable for the care prices that are consistent with value and populations they serve. Institute competitive efficiency—and not just pass on higher prices to bidding for medical commodities such as drugs, consumers. equipment, and supplies. Policies to Expand Options and Encourage High- 2. Strengthen primary care and support care teams Value Choices by Consumers: Create incentives for high-cost, complex patients. Promote patient- for consumers to choose high-value care and high- centeredness and better outcomes by changing performing care systems based on comparative payment for primary care to reward care information about quality and costs. management, coordination, and a team-based, 5. Offer Medicare beneficiaries a new “Medicare systemic approach to treating patients who are Essential” plan that provides more comprehensive covered by Medicare, Medicaid, other public benefits and better protection against catastrophic programs, and by private plans participating in costs and includes provider and enrollee incentives the new health insurance exchanges. to achieve better care, better health, and lower costs. Develop a value-based benefit design that encourages beneficiaries to obtain care from 8 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System high-performing care systems. These incentives 10.Establish spending targets. Target total combined would be aligned with payment reforms that public and private spending to grow at a rate give providers incentives to develop and join no greater than economic growth per capita. innovative care systems that improve patient Set targets for the nation (long-term GDP outcomes and care experiences. growth per capita), as well as for states, regions, or localities, and adjust policies as appropriate 6. Provide positive incentives for Medicare and based on progress in meeting targets. Collect data Medicaid beneficiaries to seek care from high- to inform and enable state and local action to value, patient-centered medical homes, care teams, develop focused policies if growth exceeds targets. accountable care organizations, and integrated delivery systems. Work with local employer Setting a target for overall spending coalitions to spread the same value-based growth—across all payers, public and private, and approach, with positive incentives for patients across all providers in all areas—of no greater than in private plans. economic growth per capita would provide guidance 7. Enhance information on clinical outcomes of for these policies and any further policy action that care and patient experiences to inform treatment is needed. Collecting data on total spending and decisions and choices of providers and care systems. sources of spending growth at the national, state, Accelerate the “meaningful use” of health and local levels would enable state and local govern- information technology to assess and compare ments to set their own targets and develop focused clinical outcomes over time from alternative policies to meet them. treatment choices and, through use of patient More consistent payment approaches across registries, to enable post-marketing surveillance payers also could help counteract the concentration of safety and care outcomes. Provide consumers of market power among providers. Allowing multi- and clinicians with transparent information on ple payers to negotiate jointly to employ similar pay- costs and prices to further inform choices. ment methods and more consistent pricing under state or federal government auspices and aligning Systemwide Action to Improve How Health payment with efficient care and value, rather than Care Markets Function: Reduce administrative simply passing on higher prices in consolidated mar- costs, reform malpractice policy, and set targets kets, could lower private insurance premium costs for total spending growth nationally and at other geographic levels. for businesses and families. Joint negotiations among health care purchasers would need to take place 8. Simplify and unify administrative policies and under public auspices to ensure accountability. procedures across public and private health plans to Over time, the policies described in this reduce provider and plan administrative costs and report should generate evolutionary forces that lead complexity. to the formation of health care delivery organizations 9. Reform medical malpractice policy and link to that are held accountable for the costs of care as well payment in order to provide fair compensation for as health outcomes and care experiences. By assess- injury while promoting patient safety and adoption ing system performance continually relative to the of best practices. spending target, flexible policies could be calibrated to address areas in which there is excessive cost growth. www.commonwealthfund.org9 Synergistic Policies The estimates suggest the policies consistent Our synergistic approach is intended to build on the with the strategic approach could reduce projected substantial movement already afoot to improve health spending by a cumulative $2.004 trillion over health system performance. The policies would the first 10 years (2014–2023). The savings would interact to accelerate and focus that momentum to accrue to the federal government ($1.036 trillion), achieve the goals of better health, better health care state and local governments ($242 billion), employ- experiences, and lower costs.† ers ($189 billion), and households ($537 billion) The need for action applies not only to the (Exhibit ES-1). federal government, but also to state and local gov- For the federal government, the analysis indi- ernments, businesses, and households—all of which cates net savings well beyond the level necessary to are under increasing financial pressure from rapid offset the 10-year costs of replacing current Medicare health spending growth. The overarching goal policies that call for steep cuts in payments to physi- should be moving the U.S. health system toward a cians under the sustainable growth rate (SGR) for- higher level of performance, one marked by access to mula. By instituting broader Medicare payment affordable care for all, improved quality and patient- reforms and ensuring these spread to Medicaid as centeredness, greater accountability for both health well, the pace of delivery system reform would be outcomes and treatment costs, and enhanced popu- accelerated without resorting to across-the-board lation health. A high performance health system is reductions in provider payments and would produce not only consistent with stability in health care substantial net savings for federal programs. Targeted spending, it is essential for it. policies to lower administrative costs for providers To examine the potential of our proposed could furthermore support growth in clinician synergistic policies, The Commonwealth Fund con- incomes. tracted with Actuarial Research Corporation (ARC) U.S. households would be the major winners to estimate the cumulative impact on health care over time from the strategic approach we describe spending by 2023 if an illustrative set of policies here, with the potential for better care and health were to take effect in 2014, assuming the policies are outcomes as well as an estimated $537 billion in enacted in 2013. The analysis examined the net direct savings over 10 years. These savings result impact on spending by the federal government, state from lower future insurance premium and out-of- and local governments, private employers, and pocket costs resulting from more efficient insurance households as well as total health spending.‡ markets serving Medicare beneficiaries, and from slower growth in the underlying costs of care as the delivery system responds to new incentives for † D. Berwick, T. Nolan, and J. Whittington, “The Triple enhanced, high-value care and care systems. In the Aim: Care, Health, and Cost,” Health Affairs, May/June 2008 end, reduced health spending by federal, state, and 27(3):759–69. ‡ For details regarding data used and modeling assump- local governments and private employers also would tions see J. Mays, D. Waldo, R. Socarras et al., Technical Report: accrue to households, which ultimately bear the bur- Modeling the Impact of Health Care Payment, Financing, and System Reforms (prepared for The Commonwealth Fund by den of health spending through higher taxes, Actuarial Research Corporation, Jan. 2013). reduced wages, and direct out-of-pocket costs. 10 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System Exhibit ES-1. Synergistic Strategy: Potential Cumulative Savings Compared with Current Baseline Projection, 2013–2023 Net impact in $ billions* Federal State and local Total NHE government government Private employers Households 2013–2018 –$686 –$345 –$84 –$66 –$192 2013–2023 –$2,004 –$1,036 –$242 –$189 –$537 Note: NHE = national health expenditures. * Net effect does NOT include potential impact of spending target policy. Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. Current baseline projection assumes that the cuts to Medicare physician fees under the sustainable growth rate (SGR) formula are repealed and basic physician fees are instead increased by 1% in 2013 and held constant from 2014 through 2023. It is important to note that, even with these savings would largely accrue to providers, freeing up savings, the health sector would continue to grow. physicians and their staff to spend more time on This growth would provide resources to innovate patient care. and develop new medical breakthroughs, as well as The analysis indicates that such a compre- allow us to meet the needs of an aging population hensive and synergistic approach, with all payers (Exhibit ES-2). pulling together in the same direction, would stabi- Notably, the bulk of the estimated $2 trillion lize health care spending and bring it more in line in savings comes from pay-for-value reforms that with growth of the economy. The percentage of accelerate delivery system innovation and from low- GDP spent on health care by 2023 would be an esti- ering insurance-related administrative costs by sim- mated 19 percent—similar to the 18 percent pro- plifying and standardizing reporting and other poli- jected in 2013 (before the policies begin to take cies (Exhibit ES-3). Administrative simplification Exhibit ES-2. Projected National Health Expenditures (NHE), 2013–2023: Potential Impact of Synergistic Strategy NHE in $ trillions $6.0 Current baseline NHE projection $5.5 Projected NHE net of policy impacts $5.0 $5.1 $4.0 $2.9 $3.0 $2.0 NHE as percentage of GDP— Current projection: 18% in 2013g21% in 2023 $1.0 Under unified strategy: 18% in 2013g19% in 2023 Cumulative NHE savings under synergistic strategy: $2.0 trillion $0.0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Note: GDP = gross domestic product. Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. Current baseline projection assumes that the cuts to Medicare physician fees under the sustainable growth rate (SGR) formula are repealed and basic physician fees are instead increased by 1% in 2013 and held constant from 2014 through 2023. www.commonwealthfund.org11 Exhibit ES-3. Cumulative Net Impacts of Payment, Engaging Consumers, and Systemwide Policies, 2013–2023 Net savings in $ billions Total 2013–2018 2019–2023 2013–2023 Payment reforms to pay for value to accelerate –$442 –$891 –$1,333 delivery system innovation Policies to expand and encourage high-value –$41 –$148 –$189 choices by consumers Systemwide actions to improve how health care –$203 –$279 –$481 markets function* Cumulative NHE impact** –$686 –$1,318 –$2,004 Note: NHE = national health expenditures. Totals may not add because of rounding. * Net savings do NOT include the potential impact of the spending target policy. Malpractice savings included in impact of provider payment reforms. ** Cumulative NHE impact adjusted for potential overlap of component policy impacts. Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. Current baseline projection assumes that the cuts to Medicare physician fees under the sustainable growth rate (SGR) formula are repealed and basic physician fees are instead increased by 1% in 2013 and held constant from 2014 through 2023. effect) and considerably lower than the 21 percent could be adjusted over time to achieve targets by the projected under current law. end of the decade. The growth in Medicare spending per bene- To get these results, it will be necessary to act ficiary would be below GDP growth for most of the quickly and for major payers to pull together with a decade, with substantial net savings compared with sense of urgency. As illustrated in Exhibit ES-1, the current projections. In contrast with Medicare, how- net impact of these policies accelerates over time as ever, although private spending per enrollee would the health care delivery system and markets respond slow, it would continue to exceed GDP growth as it to new incentives and as the policies spread across has in recent years. If focused policies at the local, the public and private sectors. state, regional, or national level slowed private per- The Commonwealth Fund Commission on person spending growth to bring it more in line with a High Performance Health System offers this syner- economic growth, the estimates indicate that gistic set of policies as a way forward for federal and national health expenditures (NHE) as a share of state policymakers and private-sector health care GDP by 2023 would be near the 2013 level. leaders confronting escalating health care costs. We Spending growth targets and data for assess- also offer criteria to guide national discussions ing change will be instrumental to inform future related to the federal deficit and federal health pro- action. At the state or local market level, it will be grams. Building on the three pillars of payment particularly important to have reliable information reform, high-value choices, and other market reforms, on baseline total spending and trends so that policies the United States has the potential to accelerate health can be developed as needed, since patterns would care innovation while ensuring access for all. likely vary in different parts of the country. Policies 12 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System CONFRONTING COSTS: STABILIZING U.S. HEALTH SPENDING WHILE MOVING TOWARD A HIGH PERFORMANCE HEALTH CARE SYSTEM RISING HEALTH CARE COSTS: national resources spent on the health system means A NATIONAL CONCERN less for education, infrastructure (such as roads, Health spending as a share of the gross domestic updated electric power systems, and trains), non– product (GDP) has climbed steadily in the United health care jobs, wages, and investments necessary to States over the past half-century. Today, health care compete in a global economy. Moreover, we have constitutes 18 percent of GDP, up from 14 percent broad evidence that a substantial share of this spend- in 2000 and 5 percent in 1960. On average, the ing is wasted on duplicative services, excessive U.S. spends twice as much per capita—and 50 per- administrative costs, and poorly coordinated, ineffec- cent more as a share of GDP—on health care as tive, or unsafe care. This excess spending has put other industrialized nations do (Exhibit 1). But pressure not only on federal, state, and local govern- other wealthy nations achieve longer lives, lower ment budgets, but also on businesses and households infant mortality, better access to care, and higher across the country. care quality while spending far less.1 Total U.S. The growth of U.S. health spending also spending on health care was $2.7 trillion at the end contributes to upward pressure on the federal bud- of 2011; under current policies, it is expected to get. Our national commitment to providing health more than double by 2023, rising to $5.5 trillion. insurance to the elderly and disabled through For decades, U.S. health care spending has Medicare and to low-income families, the disabled, grown far faster than incomes and consumed long-term care residents, and children through resources that might otherwise have been spent on Medicaid and the Children’s Health Insurance other pressing needs. The high and rising portion of Program—combined with our commitment to Exhibit 1. International Comparison of Spending on Health, 1980–2010 Average spending on health per capita ($US PPP) Total health expenditures as percentage of GDP $8,000 18 US SWIZ $7,000 16 NETH CAN 14 $6,000 GER FR 12 $5,000 AUS 10 $4,000 UK JPN 8 US $3,000 NETH 6 FR GER $2,000 CAN 4 SWIZ $1,000 UK 2 JPN AUS $0 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Notes: PPP = purchasing power parity; GDP = gross domestic product. Source: Commonwealth Fund, based on OECD Health Data 2012. www.commonwealthfund.org13 reaching near-universal coverage under the While spending on publicly funded pro- Affordable Care Act—means that a growing share of grams is currently a focal point of federal budget the population looks to government programs for debates, for the past several years both Medicare and help in ensuring affordable access to the health care Medicaid spending per enrollee have been growing system. This includes an increase in the number of at rates well below spending for those who are pri- Medicare beneficiaries from 48.7 million in 2011 to vately insured.6 And the slower rate of growth for 65.8 million in 2021 as those born following World public programs—particularly Medicare—is pro- War II reach age 65.2 The Congressional Budget jected to continue over the next decade (Exhibit 2). Office (CBO) projects that, under current law, fed- On a per capita basis, Medicare spending is pro- eral spending on Medicare, Medicaid, the Children’s jected to increase at a rate of 2.9 percent per year Health Insurance Program, and tax credits for low- between 2011 and 2021, compared with 4.6 percent and modest-income families to help offset the cost for private employer-based insurance.7 In fact, of private insurance in state exchanges will rise from Medicare spending per enrollee is projected to grow 24 percent of the federal budget in 2012 to 32 per- more slowly than GDP per capita as a result of cent in 2022 and 38 percent in 2037.3 reforms put in place in recent years.8 Policies enacted as part of the Affordable Indeed, businesses and families have faced Care Act helped ease the pressure somewhat by slow- rapid increases in private health insurance costs for ing the growth of Medicare spending per person— more than a decade, with average premiums rising saving an estimated $716 billion from what almost four times as fast as wages and general infla- Medicare would otherwise have spent over the next tion since 1999. Total employer-based premiums are decade while improving benefits for beneficiaries.4 up by 172 percent and employee shares of premiums This action extended the solvency of the Medicare by 180 percent (Exhibit 3).9 The full annual cost of Trust Fund for hospital care by seven years.5 Exhibit 2. Medicare Spending per Enrollee Projected to Increase More Slowly Than Private Insurance Spending per Enrollee and GDP per Capita Annual rate of growth (percent) 8 GDP per capita 7 Medicare spending per enrollee Employer-sponsored insurance spending per enrollee 6 5 4.5 4.6 4 3.7 3.8 2.9 3 2.7 2 1 0 2008–2011 2011–2021 (projected) Note: GDP = gross domestic product. Source: CMS Office of the Actuary, National Health Expenditure Projections, 2011–2021, updated June 2012. 14 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System Exhibit 3. Premiums Rising Faster Than Inflation and Wages Cumulative changes in insurance premiums Projected average family premium as a percentage and workers’ earnings, 1999–2012 of median family income, 2013–2021 Percent Percent 200 Health insurance premiums 35 180% Workers’ contribution to premiums 30 31 175 Workers’ earnings 30 28 29 172% 26 26 27 150 Overall inflation 24 25 25 22 23 125 20 20 19 18 18 18 18 100 17 15 15 13 75 12 47% 10 50 25 38% 5 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Projected Sources: (left) Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits Annual Surveys, 1999–2012; (right) authors’ estimates based on CPS ASEC 2001–12, Kaiser/HRET 2001–12, CMS OACT 2012–21. health insurance premiums already amounts to 23 $2.9 trillion to $5.5 trillion (Exhibit 4). Businesses percent of median family income, on average, for the and households are projected to pay half of total working-age population. If projected trends con- national health care costs in 2023, while the federal tinue, the average premium for a family plan would government will pay 32 percent and state and local exceed $24,000 by 2021—the equivalent of 31 per- governments will pay 18 percent. Although the busi- cent of median family income, intensifying pressure ness share will be somewhat smaller in 2023 than in on family budgets across the country.10 With deduct- 2013 as a result of the aging of the population, total ibles up sharply and premiums already representing a business spending on health benefits is projected to high share of income for even middle-class house- increase by 60 percent over the decade. holds, affordability is of intense concern to working- The challenge for national policy leaders and age adults and their families.11 If we could succeed in the federal government, then, is how to further sta- slowing the growth rate by 1 percent to 1.5 percent bilize and slow the increase in Medicare and per year compared with historic trends while pre- Medicaid spending per enrollee, given already rela- serving coverage, it would mean $2,000 to $3,000 in tively low projected rates of growth. To secure fur- premium savings by the end of the decade for fami- ther reductions in the growth rates, federal programs lies insured through employers—freeing up funds will need to work in concert with private payers to that could then be available for wages.12 address the underlying factors that are driving up the Thus, the rising costs of health care are a costs of care across the health system. shared concern. Total business and household spend- At the same time, as pressure mounts to ing on health, as well as federal health spending, are address the federal deficit and puts greater focus on projected to increase sharply between 2013 and federal health spending, it is imperative to act in 2023 as national health expenditures increase from ways that are consistent with the goals of a high www.commonwealthfund.org15 Exhibit 4. Projected U.S. National Health Expenditures (NHE) by Source, 2013–2023 NHE in $ billions $6,000 $5.5 trillion Federal government $5,000 32% State and local $4.0 trillion $4,000 government $2.9 trillion 31% Private employers 18% $3,000 (including "other 28% 18% private revenue") $2,000 18% 24% Households 25% 26% $1,000 26% 28% 26% $0 2013 2018 2023 % GDP: 17.9% 18.7% 20.5% Note: GDP = gross domestic product. Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. performance health system. The current situation and public payers; and 2) present a framework and presents both a crisis and an opportunity to acceler- criteria to guide and inform policy choices. ate movement to a high-quality, innovative system The policy section of the report then that is accessible for all—while stabilizing health care describes a set of actions that address factors driving costs. up costs while adhering to the proposed criteria. With the goal of informing national policy, These synergistic policies combine payment reforms, this report provides a framework, sets criteria, and incentives and information for engaging consumers outlines actions that could reduce future federal in high-value choices, and other reforms to improve health care spending primarily by accelerating deliv- the way markets function. We estimate the potential ery system reform and innovation. If implemented impact over the next 10 years using illustrative poli- soon and effectively, the policies described here have cies consistent with such a strategic approach. the potential to produce significant savings for state The concluding section of the report dis- and local governments, businesses, and households cusses the need to act soon and the importance of all as well as the federal government, while improving payers pulling together to bring cost growth in line health system performance. with economic growth in ways that also secure access These policies target the underlying factors to care and improve health system performance. contributing to rising health care costs while con- tinuing to support the overarching goal of a high- FACTORS DRIVING UP HEALTH CARE performing health system. As background for these SPENDING policies, the following two sections: 1) summarize Health spending, by definition, is the product of the key factors contributing to rising costs for private price paid for health services and the volume and intensity of services used. Both prices and utilization 16 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System have contributed to high levels of and increases in • Administrative costs. Administrative costs in health spending in the public and private sectors. the U.S. are considerably higher than in other Moreover, there is considerable overlap between key countries.21 Monitoring and complying with the factors influencing prices and volume.13 Although myriad regulations promulgated as a result of the specific contribution of each factor to total costs the fragmentation of the health care financing is debatable, most are amenable to policies that and delivery systems adds substantial overhead address high or rising costs and the gap between costs to private insurers and public payers as costs and value.14 well as internal costs to providers. The costs to providers include the time that physicians and Prices their staff members spend interacting with health The U.S. pays much higher prices for health services plans that could otherwise have been devoted to than do other countries, whether for drugs, medical patient care.22 Higher administrative costs drive devices, diagnostic tests, or other services.15 There is up prices in the health care market with minimal also wide variation in the prices paid by different contribution to quality or access to care. payers for the same services. Even more striking, a single insurer in the private sector may pay widely Volume and Intensity different prices for the same service, depending on Current fee-for-service payment in both the public the provider, and different insurers pay very different and private sectors rewards the provision of more prices for the same service from the same provider.16 health services and procedure-based treatments, Such incoherence appears to be the norm rather regardless of their contribution to better patient out- than the exception.17 Studies indicate that prices comes.23 Although volume and intensity vary across tend to be highest for services delivered by providers geographic areas and category of service, the overall that dominate the market or that are regarded as trend has been one of upward pressure on total “must have” by insurers, and thus have market health spending.24 This trend is driven by several key power. factors: In recent years, higher prices paid by private • Fragmented care and care systems. Health care is insurers have accounted for most of the increase in too often fragmented as a result of failures to health insurance premiums.18 Yet a lack of transpar- share information and develop a treatment plan ency makes it difficult to see, much less address, among the various clinicians who may care for price concerns.19 Critical factors contributing to high a particular patient, especially for patients with and rising prices include: multiple or complex conditions. Several studies • Concentration of market power. Both the private indicate the potential benefits of primary care health insurance industry and the health care teams that include nurses and other clinicians in delivery system have become more concentrated addition to doctors, especially for care for high- over time, although the degree of concentration risk patients.25 These gains are enhanced by more varies across geographic areas. As a result, the integrated care systems, in which specialists and relative market power of some providers to primary care clinicians work together supported charge more, and payers to pass on these costs to by systems that provide key information across business and households, have emerged as central concerns.20 www.commonwealthfund.org17 sites of care, including during transitions from a • Changing demographics. The U.S. population is hospital to community or home care. growing older, as are the populations of most • Medical technology. Unlike in most industries, high-income countries. In fact, many countries in health care the availability of new technology already have much older populations than the has tended to add to costs rather than U.S.34 The aging of the population has important lowering them.26 Although new technology implications for health spending because the may contribute to better health in specific elderly tend to have greater health care needs. applications, the frequent lack of connection Without innovation in the way we deliver care, it between the value and the price of new drugs, will be difficult to meet the needs of our aging devices, and treatments is a symptom of market population and hold the line on health spending.35 failure.27 Conversely, technology with the potential to yield social benefits that accrue Although their impact may differ by geo- beyond an individual practice or facility—such as graphic area or sector, all of these factors contribute health information technology—is slow to spread to both public and private health spending, and without targeted policies that provide incentives most are directly amenable to policy. However, poli- for adoption and use across markets.28 cies that target federal programs alone or simply shift • Malpractice liability. Estimates of the impact costs to states, businesses, or households potentially of the current malpractice system on excessive destabilize the health care system and ignore the screening and other tests in reaction to fear underlying market realities. A successful strategy to of lawsuits range from minimal to more stabilize health spending will require a multipronged substantial.29 But whatever the contribution approach, guided by a strategic framework to to costs, malpractice reforms that reward best improve performance across the health system. practices, provide fair compensation for injury, and encourage patient safety would be more CRITERIA FOR STABILIZING HEALTH effective in mitigating incentives to do more SPENDING GROWTH AND IMPROVING tests and promoting a culture of safety than the SYSTEM PERFORMANCE current system.30 As national policy leaders consider approaches to • Increasing prevalence of chronic medical conditions. slow and stabilize the growth of federal health Estimates of the contributions of obesity and spending in ways that also benefit all payers (state other chronic conditions to rising health care and local governments, businesses, and households), costs vary.31 Still, chronic conditions certainly it is crucial that these approaches be developed and account for a large and growing proportion applied to adhere to and further the goals of a high of U.S. health spending, especially among the performance health system. These goals include pro- elderly.32 Initiatives that encourage healthier viding affordable access across the nation to high- aging and the use of teams to support and quality, well-coordinated and patient-centered care manage care for people with multiple chronic with continuous delivery system innovation.36 conditions offer the potential to slow decline in Achieving the goals of a high performance health health or prevent complications, improve care, system, while stabilizing cost growth, requires a and reduce cost growth.33 18 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System focus on the total health system and health care mar- states and private payers—and that takes the best of kets, not just federal programs. what private or public sectors have to offer—could There is an urgent need to act and to do so align incentives across markets to accelerate delivery strategically within a framework and guided by crite- system reform. Further, having public and private ria that promote these overall goals. Otherwise, we payers work in concert is critical for sending consis- risk producing unintended consequences (including tent market signals to hold care systems accountable harm to vulnerable populations) and/or pursuing for innovating to improve population health and self-defeating and ineffective action. For example, add value. approaches that focus only on cutting eligibility and Ensuring that patients have access to high- benefits, or slashing payments to providers, may quality care is fundamental to a high performance reduce the projected growth of federal spending, but health system and to improving population health. only by shifting costs to individuals and employers Thus, any action addressing costs must preserve while undermining access to care.37 By contrast, access and enhance equity. At the same time, value- innovative federal actions, such as payment reforms based insurance benefit designs that lower or elimi- through Medicare and Medicaid, as well as those nate costs for essential care and provide incentives that establish partnerships with private payers, pro- and information to guide choices of care and care viders, and consumers, have the potential to acceler- systems—and to choose wisely—could augment and ate the pace of change across communities. Indeed, support provider incentives to focus on outcomes in the past, private payers have often followed and value. Medicare’s lead in implementing innovative payment With the aim of making continued progress reform—such as with the introduction of more bun- toward a high performance health system—one that dled payments for hospitals using diagnosis-related is high-quality, innovative, accessible, and affordable groups (DRGs) and the implementation of the for all—the Commission developed the following resource-based relative value scale for determining criteria to guide the selection and design of policies physician fees. And Medicare has implemented to control health spending. These criteria adhere to approaches that have been developed in the private the goals of a high performance health system and sector as well, such as value-based purchasing. guide the selection of policies that have the potential A framework that considers the potential for to make a positive difference (Exhibit 5). federal policies to spread through collaboration with Exhibit 5. High Performance Health System Criteria for Developing Options to Stabilize Spending Growth • Set targets for total spending growth • Pay for value to accelerate delivery system reform for better outcomes, better care, at lower costs • Address the systemwide causes of health spending growth—not just federal health costs • Align incentives for providers and consumers across public and private payers • Protect access and enhance equity, but also engage and inform consumers • Invest in information systems to guide action www.commonwealthfund.org19 • Set spending targets. Set national and regional • Protect access to care and enhance equity targets for health spending growth that limit while engaging consumers. Access to care and increases in health spending to the rate of equity must be protected and enhanced, but growth of the economy as a whole. Such targets consumers also should be engaged in the process would focus attention on growth rates, create of improving health and choosing high-value accountability for excessive growth and provide a care. benchmark against which to judge the success of • Invest in information to guide action. Invest in policies. Setting targets and tracking cost trends better information and information systems on would inform future actions aimed at addressing clinical outcomes and costs of care to drive and problem areas, while allowing sufficient growth guide consumer choices, providers’ health care to capture the benefits of advances in biomedical decisions, and policy. science. • Pay for value to accelerate delivery system In devising policies to confront health care reform. Hold providers accountable for costs, we can draw on the authority to innovate and population health outcomes and high-value care. the tools that are already available as a result of Changing the way care is delivered, managed, recent health reform legislation, thus building on the and coordinated is critical to stabilizing health momentum of promising efforts under way across spending and improving outcomes. the country. As a result of congressional action and • Focus systemwide. Policies to control health efforts of multiple groups around the country, the spending growth should address its systemwide nation is investing in the spread and use of health causes and effects, not just federal costs. Federal information technology, better information to spending is an imminent concern, but health inform patients about the risks and benefits of treat- spending growth also puts pressure on state and ment choices, and an array of payment and delivery local governments, businesses, and households. system reforms intended to reduce long-term health It will be important to stabilize spending for spending and improve health system performance.39 everyone, not shift costs from one stakeholder to (See box on next page, Initiatives and Provisions another. Currently in Place to Support Health System • Align incentives. Public and private payers Reform.) should act in concert, adopting similar payment Federal, state, and private-sector concerns reforms to send consistent signals and provide about costs have stimulated joint Medicare and support for innovative care teams and Medicaid initiatives, as well as partnerships among accountable care systems. It is essential to align federal and state governments and private payers. We incentives for providers and consumers across are also seeing new collaboration among providers public and private payers to advance the “triple and between providers and payers around the joint aim” of better care, better health, and lower costs.38 20 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System goals of better quality and lower costs.40 This As policymakers and the nation confront the momentum includes several physician specialty urgent need to stabilize health spending, these activi- groups’ actions to identify treatments and care that ties provide a foundation on which to build. are potentially inappropriate or ineffective through However, we need to accelerate the pace of change the Choosing Wisely campaign to engage and by implementing policies that can help create a more inform patients.41 affordable, better health care system for all. INITIATIVES AND PROVISIONS CURRENTLY IN PLACE TO SUPPORT HEALTH SYSTEM REFORM • Insurance market reforms: will provide choice, establish essential benefit designs that include preventive care, and create market rules that ensure access, increase transparency, and focus competition among insurers on improving value for their enrollees. • Health information technology: Policies and funding to encourage physicians, hospitals, and other providers to use electronic health records and exchange information to improve the efficiency and quality of the care they provide. • Value-based purchasing: Public and private efforts to use financial incentives to improve quality, safety, and outcomes, including reducing hospital infection and readmission rates. • Medicare Advantage: Revised payment for private Medicare Advantage plans with incentives for efficient provision of care and rewards for high performance. • Primary care: Enhanced Medicare and Medicaid payment for primary care and new ways of paying for primary care that support medical homes and similar models. • Bundled payment: Public and private bundled payment initiatives for hospitals to encourage better care in the hospital, better transitions between care settings, and coordination with postacute settings. • Medicare Shared Savings Program: to foster the development of accountable care organizations, with groups of providers taking broad responsibility for the quality, outcomes, and costs of care and earning rewards for high performance. Multiple initiatives include Medicare as part of multipayer efforts. • Federal/state Medicaid initiatives: teams and “health homes” to coordinate and provide care for those with multiple chronic conditions, and advanced care teams for ongoing care for high-risk patients. • Private initiatives: Multiple private insurer initiatives to support patient-centered primary care homes, accountable networks, bundled payments for care, and shared savings agreements. • Center for Medicare and Medicaid Innovation: authority to develop, implement, assess, and spread promising models of care payment and delivery. The authorization allows the HHS Secretary to extend and expand successful innovations if they reduce costs and/or improve outcomes. Medicare also is provided with authority to partner with state and private-payer initiatives. • Patient-Centered Outcomes Research Institute: public/private partnership to encourage research on diagnosis and treatment options as well as ways to improve health care systems and accelerate patient-centered outcomes research and methodological research. • Administrative reforms: more standardized reporting and electronic submissions and standards to lower overhead costs for private insurance. www.commonwealthfund.org21 GETTING AHEAD OF THE CURVE: Provider Payment Reform to Promote Value and POLICIES TO STABILIZE HEALTH CARE Accelerate Delivery System Innovation: Create incentives to coordinate care, lower costs, and SPENDING WHILE IMPROVING SYSTEM improve outcomes. PERFORMANCE As a result of an aging population and insurance To address federal and broader national concerns expansions, over the next decade Medicare, about affordability and health care costs, it is imper- Medicaid, and the Children’s Health Insurance ative to act, but do so in ways that are consistent Program (CHIP) together will be paying for care for with the goals of a high performance health system. more than 40 percent of the population (150 mil- Guided by the criteria described above, the lion people).42 It is possible, then, to implement Commission set the goal of holding future growth in widespread reform by starting with these programs. health spending to no greater than the long-term The following payment policies would use payment growth of the economy, and to do so primarily by reform to accelerate the pace of delivery system reforming the way health care is paid for and innovation and care integration and coordination, delivered. while increasing accountability for improving out- The initiatives described below seek to har- comes and reducing cost growth per beneficiary over ness provider incentives, consumer incentives, and time. To maximize the impact and ensure consistent market interactions so that all pull in the same direc- signals, the policies would coordinate public pro- tion of better care and care experiences at lower cost. grams’ payment policies (Medicare, Medicaid, and The policies also would allow flexibility for local other public programs) and facilitate spread to pri- innovation and provide better, more transparent vate payers to align incentives and reduce adminis- information for consumers and health system leaders trative complexity for providers. to choose and act wisely. Using a three-pronged The net effect of these policies would be to approach, these policies would: 1) use payment move from our current unfettered fee-for-service reform to reward value and accelerate delivery system payment system into one that pays for value, includ- innovation; 2) engage consumers with information ing more bundled payment approaches that reward and positive incentives to choose high-value care and efficient care and better population outcomes. These care systems; and 3) implement other systemwide payment changes would accelerate delivery system reforms to address market forces driving costs, transformation to improve population health at including administrative complexity, malpractice lower cost, and would promote diverse organiza- costs, and consolidation of market power. Improving tional models that enable providers to better manage the way markets function also includes setting a tar- the quality and cost of care for their patient get for total spending growth at no more than eco- populations. nomic growth to hold care systems and insurers In addition, these policies would strengthen accountable for the overall costs of care in ways that primary care by providing funds for better practice meet the needs of the population. infrastructure (such as health information technol- ogy and teams to manage high-cost patients and coordinate care). Policies focused on primary care would include incentives and expanded resources 22 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System (including nurses and other clinicians) to improve fees were scheduled to be cut by 27 percent across outcomes, while maintaining or enhancing primary the board—for every service—on January 1, 2013.44 care physicians’ income. Congress postponed the cuts for a year. There is Finally, the set of payment reform policies broad consensus on the need to replace the SGR would replace the current Medicare sustainable policies. growth rate (SGR) formula that calls for an across- This policy would repeal and replace the the-board reduction in payment to physicians. A SGR with a Medicare physician payment policy that new Medicare physician payment policy would provides incentives to improve health outcomes and include incentives to join and develop high-value participate in care system innovation. The policy care networks and care systems while eliminating the would restructure the Medicare fee schedule to scheduled cuts. reduce payment rates for services meeting specified The following four illustrative payment criteria as overpriced, and institute a system for reform policies would move away from paying fees future increases tied to performance.45 To move more for services to paying for value to accelerate delivery quickly to models of coordinated care with account- system reform while incentivizing and supporting ability for outcomes, the policy would provide future providers to lower costs and improve care. increases in fees only for providers participating in innovative payment or delivery systems such as 1. Medicare physician fees: pay for value. Replace Medicare’s current system for patient-centered medical homes (see below), bundled determining physician fees (and the resulting payment, and accountable care organizations. Fees reductions called for under current law) by would otherwise remain at 2013 levels. To use the holding fees constant at their current level, market to drive down costs, Medicare could institute while adjusting relative payment rates that meet specified criteria as “overpriced.” Provide competitive bidding for medical commodities.46 increases in future prices only for providers participating in payment and delivery system 2. Strengthen patient-centered primary care innovations with accountability for the and support care teams for high-cost, populations they serve. Institute competitive complex patients. bidding for medical commodities (drugs, Change payment of primary care to reward care equipment, and supplies). management, coordination, and a team-based systemic approach to caring for patients under One impediment to using payment policy to Medicare, Medicaid, other public programs, and private plans participating in health insurance accelerate delivery system innovation with a focus on exchanges. paying for value is the sustainable growth rate (SGR) formula used to set Medicare physician fees.43 This Strengthening the primary care foundation formula was intended to counteract the incentive to of the nation’s health system is critical to providing increase volume and intensity by imposing across- timely access to care, preventive care, and better out- the-board reductions in fees if Medicare physician comes for those with chronic disease. Rich evidence spending growth exceeded a predetermined target. from within the U.S. and abroad attests to the Since 2003, however, Congress has intervened to potential of redesigned primary care and care teams supersede the scheduled reductions temporarily, to improve care and patient experiences—and to without changing the formula. Medicare physician lower costs over time by preventing complications www.commonwealthfund.org23 and reducing avoidable use of hospitals and more the Federal Employees Health Benefits Program, the specialized care.47 By enhancing primary care pay- military health coverage programs (TRICARE and ment tied to the capacity to serve as patient-centered the Civilian Health and Medical Program of the medical homes with teams for managing care for Uniformed Services), the Veterans Health chronic conditions across sites of care, payment Administration, and other federal programs. Public reform would strengthen primary care and overall programs would partner with private payers where systems of care. This policy would augment fee-for- possible to enhance community-wide access to more service payments with additional payment for care effective, patient-centered care teams and networks. coordination, 24/7 access, and the use of teams for 3. Bundle hospital payment to focus on total care delivery under Medicare, Medicaid, other fed- costs and patient outcomes. eral programs, and private plans. It would include Accelerate bundled payment approaches for incentives for providers to improve patient out- hospital and postacute care under Medicare, Medicaid, other public programs (including the comes. The policy would complement new Medicare Federal Employees Health Benefits Program) beneficiary incentives that include reduced cost-shar- and private plans participating in insurance ing for those who select patient-centered medical exchanges. homes and chronic care teams (discussed below). Currently, Medicare, Medicaid, and private In addition to providing core support for insurer payments for hospital care typically do not medical homes, the policy would invest in the devel- include physician services and do not hold hospitals opment and more intensive use of teams to manage accountable for readmissions or follow-up care. care and improve care coordination by providing More-inclusive bundled payments in which a single enhanced payment to providers that have the team- payment is made for all care provided during an epi- based capacity to care for high-cost patients with sode of care involving a hospital stay—including multiple chronic diseases or disability. Such teams physician services—would provide incentives for would include nurses and other clinicians working teamwork and accountability for the total costs of with primary care physicians and would provide and care and outcomes associated with hospital episodes coordinate after-hours or at-home care. Care teams of care. Medicare has begun a pilot to test alternative responsible for high-risk, high-cost patients would approaches to bundled payment. One model being work interactively with hospitals and specialists to tested bundles physicians’ services and postacute ensure patients make smooth transitions across care transition care for selected procedures. Several bun- settings and receive follow-up care after hospitaliza- dled payment initiatives have been implemented in tions. Such teams would be held accountable for the private sector as well.49 Accelerating bundled patients receiving timely, safe, and effective care. payment for hospital and posthospital care under New payment incentives and support for Medicare, Medicaid, the Federal Employees Health comprehensive primary care teams through Medicare Benefits Program, and other public programs and and Medicaid would spread efforts already under private plans in insurance exchanges would support way that include the use of multidisciplinary teams movement toward high performance, and provide of doctors, nurses, and others to support and engage incentives for hospitals to make transitions and fol- patients.48 This policy would focus on the highest- low-up care a priority. Greater use of bundled cost Medicare and Medicaid patients and extend to 24 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System payment for hospital care and postacute care also for medical homes and high-cost care teams, would would make it easier for patients as well as payers to further accelerate practice innovation. compare and assess the total costs of care and quality More consistent payment approaches across for certain procedures and conditions such as payers could also help counteract the concentration hip replacement surgery, appendectomy, or heart of provider market power. Under state or federal bypass surgery. government auspices, allowing multiple payers to negotiate jointly to employ similar payment methods 4. Adopt payment reforms across markets, with public and private payers working in concert. and more consistent pricing that promotes efficient Align payment incentives across public and care and value—rather than passing on higher prices private payers to enable and support more in consolidated markets—could lower private insur- accountable care systems. Require private plans ance premium costs for businesses and families and participating in health insurance exchanges to incorporate alternative payment approaches counteract concentration of market power in some to support delivery system innovation such areas of the country. However, such negotiations as primary care medical homes, care teams, would likely need to be under some type of public bundled payment for hospital episodes, and shared savings or global payment arrangements authority to avoid violation of antitrust statutes and with provider systems. Encourage private plans to ensure that joint payer action converts savings in each state to negotiate prices consistent with into lower premiums rather than surplus for domi- efficient care and value and not to just pass on higher prices to consumers. nant private insurers. Antitrust oversight could also enable integration of care systems, as long as the net With federal and state health care programs effect is to lower costs and improve quality. insuring over 40 percent of the population, includ- Improving the way private insurance markets func- ing those 65 and older, the disabled, and patients tion and pay providers for care is of paramount with long-term, complex health conditions, the interest to families as well as employers that sponsor acceleration of payment policy innovations across and pay for employee health benefits. With the fed- federal and state public programs would stimulate eral government providing premium tax credits for change across the country, supporting local care sys- modest- and lower-income families enrolled through tem innovation to achieve the triple aim of better health insurance exchanges, stabilizing private health care, better health, and lower costs. This effect insurance costs would also mean lower federal out- would be amplified and benefit private as well as lays in the future. publicly insured families if similar payment methods applied to private as well as public payers. Ensuring Policies to Expand Options and Encourage High- that public and private payers employ the same or Value Choices by Consumers: Create incentives similar payment methods and reporting require- for consumers to choose high-value care and high-performing health care systems, armed with ments would also reduce complexity for physicians comparative information about quality and costs. and strengthen incentives to transform their prac- Currently, patients and consumers have very little tices in ways that improve the value of care. information to guide their care decisions or to Requiring plans participating in health insurance choose care or care systems wisely. The lack of 50 exchanges to incorporate alternative payment information about different treatment choices, clini- approaches, such as bundled payment and support cal outcomes, prices, total costs, and quality of care www.commonwealthfund.org25 has discouraged efforts to develop insurance benefit cost-sharing or eliminating cost-sharing altogether designs that provide positive incentives to seek care for essential, highly effective care, and providing from high-value care teams or networks. In all com- patients with comparative cost information for munities, annual health spending is highly concen- equivalent care choices. To enable such informed trated among the sickest 10 percent of the popula- choice, there is also a critical need to expand scien- tion, who account for 65 percent of total health tific information about the comparative risks and spending. This population includes those with can- 51 benefits of alternative treatment choices, with assess- cer, heart attacks, major injuries, and multiple ment of outcomes for existing as well as new medical chronic illnesses. In contrast, the healthiest half of technologies and practice. the population accounts for just 5 percent of total The following three illustrative policies spending each year. Given that the bulk of health would promote consumer engagement in making spending is for the sickest patients, it is important informed, high-value choices about providers and that efforts to engage consumers do not increase the treatments. substantial costs already borne by these vulnerable 5. Offer Medicare beneficiaries a new patients. To improve care outcomes and lower costs, “Medicare Essential” plan that provides more policies should instead focus on providing better comprehensive benefits and better protection information and positive incentives to choose wisely against catastrophic costs, with provider and enrollee incentives to achieve better care, based on value. better health, and lower costs. Engaging consumers requires providing bet- Use a value-based benefit design that provides ter information on alternative care choices, as well as positive incentives for Medicare beneficiaries to seek care from high-performing care systems, incentives to choose care systems that provide better such as patient-centered medical homes, health patient outcomes and more patient-centered care. care teams, accountable care organizations, With advances in communication and health infor- integrated delivery systems, and other organized systems of care. These incentives mation technology (HIT), we have the potential to would be aligned with payment reforms that track, assess, and use information about clinical out- give providers incentives to develop and join comes over time to inform and guide treatment deci- innovative care systems that improve patient sions. As HIT spreads, following investments made outcomes and care experiences. possible by the 2009 economic stimulus bill, mean- Currently, Medicare beneficiaries who decide ingful use and exchange capacity have the potential to stay in traditional Medicare face a benefit struc- to provide more timely and longitudinal information ture that exposes them to unlimited risk for high on clinical outcomes resulting from different care costs of care unless they buy supplemental decisions. “Medigap” coverage and Part D plans to cover pre- A consumer-friendly, patient-centered scription medications. The current core benefits also approach to providing information and positive include separate deductibles for hospital care, physi- incentives to choose wisely would complement pay- cians, and prescription medications. The need for ment policies that give providers incentives to inno- three insurance policies is confusing to beneficiaries vate and collaborate while being held accountable and generates high administrative costs and high for population outcomes and the total costs of care. annual premium costs. Having multiple policies also Positive consumer incentives include reducing 26 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System makes it more difficult to obtain the data needed to that the resulting premium could be less than the coordinate care effectively and complicates efforts to current premiums paid by beneficiaries with private incorporate appropriate incentives that benefit the Medigap policies that provide supplemental patient and ensure essential care (e.g., reduce hospi- coverage.53 talizations through improved medication adherence.) The benefit package of a Medicare Essential Offering Medicare beneficiaries a competi- plan would more closely correspond to that provided tive Medicare Essential plan with integrated benefits by private plans in Medicare Advantage and those that limit out-of-pocket costs while providing posi- available through public and private employers. This tive incentives to seek care from high-value care net- would provide beneficiaries with real choices among works and teams would engage Medicare beneficia- health plan options. Recalibrating payments to ries while protecting access and affordability. These Medicare Advantage plans based on the costs of the positive incentives would work in tandem with the new Medicare option, with shared savings for lower- provider payment policies described above to cost, high-quality plans and their enrollees, would encourage physician participation in high-perform- encourage plans to operate more efficiently and ing health care organizations and payment innova- encourage beneficiaries to select the best plan for tions, including the formation of patient-centered them. High-quality plans would be those that per- medical homes, high-cost care teams, and high-value form well (4 or more stars out of the maximum of provider networks. Beneficiaries could enroll in a 5) according to the rating system used by modernized Medicare Essential benefit option with Medicare.54 deductibles or copayments lowered or eliminated for 6. Provide positive incentives for Medicare and those who register with a medical home or receive Medicaid beneficiaries to seek care from high- care from a care team. This would involve the desig- value, patient-centered medical homes, care nation of a set of essential benefits, including inte- teams, accountable care organizations, and integrated delivery systems. grated Part A (Hospital Insurance, which covers Work with local employer coalitions to spread facility-based care), Part B (Supplementary Medical the same value-based approach with positive Insurance, which covers physician services), and Part incentives for patients in private plans. D (the Prescription Drug Benefit) services and an To complement provider incentives to overall out-of-pocket spending limit for covered ser- strengthen primary care and participate in account- vices. This option could be designed as self-financ- able care networks, both Medicare and Medicaid ing, with beneficiaries paying a premium directly to would offer beneficiaries positive incentives to select Medicare. care from practices and networks with proven track In estimating the potential premium cost for records of better outcomes. In Medicare, the deduct- such a Medicare Essential plan we find it would gen- ible would be waived for primary care for beneficia- erally be lower than the amount seniors typically pay ries who register with a practice that is a medical for current Medicare Supplements (Medigap poli- home or for care teams with the capacity to care for cies), in part because of lower administrative costs.52 high-cost, high-risk patients. Cost-sharing also could This confirms earlier analyses that similarly found be reduced for those patients who agree to receive care from networks that participate in the Medicare www.commonwealthfund.org27 Shared Savings Program or the Pioneer ACO initia- replacement maintained by Kaiser Permanente.55 tive. To spread this approach in Medicaid, high-cost Developing a national approach, rather than relying and chronically ill patients who elect to receive care on private systems, would provide information about provided by teams would be provided with access to the safety of devices and other technologies as well as enhanced services. Private plans participating in their comparative benefits for patients and doctors. Medicare Advantage, Medicaid, and insurance Having all-payer information on prices, qual- exchanges would be encouraged to follow a similar ity, patient experiences, and outcomes of care, at approach and to align incentives across markets to both the state and community levels, would inform support high-value care teams and care systems. consumer choice. It also would inform efforts by Efforts to align information and provide positive providers to improve care by setting benchmarks and incentives would be particularly important for net- targets, and would enable payers (both public and works participating as ACOs with multiple payers, private) to develop more value-based insurance bene- including public and private payers. fit designs. Policy leaders also may want to consider a 7. Inform choice. Enhance clinical information on outcomes of ban on direct-to-consumer advertising for medical care and patient experiences to inform choice devices and prescription drugs in favor of providing of care and care systems by accelerating information from unbiased, scientific sources. This “meaningful use” of health information would represent a return to policies in force in the technology to assess and compare clinical outcomes over time from alternative treatment United States before 1997.56 Having trusted third- choices and use registries to enable post-market party sources that compare alternatives would fur- surveillance of safety and outcomes. Promote ther enhance the ability of consumers and physicians transparency about health care costs and prices to further inform choices. to make informed choices. Alternatively, there could be tightened oversight of claims in advertising. Providing better information on the benefits, safety, and cost of alternative high-cost medical treat- Systemwide Action to Improve How Health ment choices or technologies would inform decisions Care Markets Function: Reduce administrative by patients and providers. As use of electronic medi- costs, reform malpractice policy, and set targets for total spending growth nationally and at other cal records spreads, with enhanced capacity to geographic levels. exchange information across providers, the nation Currently, health care markets do not function well. has the potential to reap benefits from its investment Fragmented payment policies and reporting require- in smarter information systems and clinical support. ments have given rise to an incoherent range of Meaningful use of such systems, however, will prices paid for the same service and same provider, require a concerted effort across care systems to pool and added layers of administrative costs for providers information on outcomes to track and assess patient and health plans. At the same time, current malprac- experience. The potential to learn from experience tice liability laws provide incentives to do more test- would be further enhanced with registries that track ing while failing to address safety concerns. experience with medical devices or other high-tech Within local markets, consolidation of pro- procedures, such as the registry for total joint viders that may result in higher-quality and more- integrated care also has the potential to increase 28 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System prices, irrespective of value, if a relative imbalance of safety and fair compensation, and enabling multi- market power results from the consolidation. In payer approaches. recent years, increasing concentration has been an Establishing a spending target and providing important factor in driving up costs for care systems data on total spending (by both public and private and for health insurance. Indeed, increases in prices payers) at national, state, and local levels would fur- paid for care by private insurers for “must have” pro- ther inform policies over time and hold health care viders or dominant systems have accounted for markets accountable. The targets, shaped by infor- much of the rise in private insurance premium costs mation on sources of cost increases and comparative as insurers pass on the higher costs, taking the path data, would enable adjustment of policies to focus of least resistance.57 This dynamic puts pressure on on what further action might be needed to achieve public programs to pay more, adding up to a recipe the goal of holding health spending increases to no for increases in total spending in excess of economic more than the growth of the economy. growth. 8. Simplify and unify administrative policies and As described above, transparency about procedures across public and private plans to health care prices, quality, and outcomes would reduce administrative costs and complexity. inform consumer choice as well as providers’ efforts Currently, private insurers employ different to improve. However, transparency alone will do lit- payment methods, reporting requirements, benefit tle to address rising prices. Indeed, there is the designs, and regulatory policies. As a result, physi- potential for lower-cost providers to aim for the high cians and hospitals face complex insurance payment, end of the range once this is made public. And in regulatory, and reporting policies with consequently communities where markets are concentrated, with high administrative costs. This complexity also few alternative sources of care available, consolidated results in insurance administrative costs in the market power could overwhelm and undermine any United States that are well above those in other incentives for consumers to compare costs. countries, including those with multiple payers and Given the reality of the current health insur- private insurance markets. Recent forums of insurers ance and delivery system market dynamics and con- and providers, and the policy papers they produced, centration, systemwide efforts will be needed to have concurred that the multiple variations add cost complement payment reforms and incentives for without value, and that there is the potential for consumers. This includes systemic efforts to lower substantial savings with simplification.58 But with the administrative costs that result from having mul- variation seen as a potential market niche, each tiple payers and failure to coordinate or standardize insurer alone has had little incentive to act. insurers’ policies. Policies that simplify and require more uni- To support payment reforms and incentives form administrative policies and procedures across for consumers to choose wisely, the following poli- public and private plans would reduce an expensive cies seek to further improve the functioning of layer of paperwork and make it easier for providers health care markets by reducing excessive adminis- to focus on providing more effective, coordinated, trative costs, reforming malpractice to promote and efficient care. Integrating administrative records systems, electronic submission of claims, shared www.commonwealthfund.org29 provider enrollment and credentialing systems, and that could lead to or be cited as the reason for exces- common quality reporting would reduce redundancy sive care. and complexity that add time and staffing costs for 10. Establish spending targets. practices and hospitals. The reduced administrative Target total public and private spending cost burden would largely accrue to physicians and (combined) to grow at a rate no greater than hospitals. Streamlined enrollment processes for economic growth per capita. Set targets at national and other geographic levels and adjust Medicaid and new insurance exchanges would also policies as appropriate based on progress toward reduce health plan and insurance system administra- meeting those targets. Collect data to inform tive costs and promote more continuous enroll- and enable state and local action and allow for focused policy responses if growth exceeds ment.59 Such efforts would build on beginning steps targets. for administrative simplification embedded in the Affordable Care Act.60 Starting in 2014, the federal government will be providing tax credits to low- and modest-income 9. Reform medical malpractice policy. families to help them buy insurance through state Malpractice reforms should be linked to payment reforms and should provide fair compensation exchanges. As noted above, private costs per capita for injury while promoting patient safety and (per enrollee) are rising faster than Medicare costs adoption of best practices. per capita, and they are projected to continue to Like administrative burdens, high premiums increase faster through the coming decade. In many for professional liability insurance add to practice markets, private insurers pay more than Medicare for costs, especially for some specialties. Yet, despite its specialized services and hospital care, especially in expense, the current malpractice system fails to cre- markets with more provider concentration or “must ate effective incentives to provide safe or evidence- have” providers. To the extent that Medicare incen- based care, or to encourage admissions of mistakes tives to form ACOs speed up market consolidation or errors to inform corrective action. Reforming the across a continuum of care, more integrated care sys- malpractice system to include provisions for fair tems could further shift the balance of market power compensation for injury and medical costs, policies in favor of higher prices. to encourage disclosure of errors, and protection for Rising costs and higher private market prices those adopting evidence-based practice could curb increase costs to businesses and working families and incentives to provide excessive or inappropriate care. threaten access for beneficiaries of public programs. Creating an environment that encourages the medi- Policies that require transparent information on cal profession to police itself—with information prices, quality, patient experiences, and outcomes of shared across state borders for licensure—would fur- care would inform efforts to reduce excess increases. ther protect patients. Such an approach would also Enabling multipayer initiatives, including joint promote patient safety and evidence-based practice. negotiations, under public auspices, could further Although system savings would likely be curb increases. With the above strategic payment, modest, coupling such malpractice reform with consumer, and market policies, it should be possible Medicare payment reform would further focus to make significant progress toward stabilizing health incentives on value, and avoid liability incentives care spending growth to no greater than the growth in the economy. 30 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System Establishing such a spending target, and and cumulative spending impact over the 10-year adjusting policies as needed if the target is exceeded, period 2014 through 2023, compared with baseline would focus attention on identifying the sources of projections under current policies. To estimate the excessive cost increases. For example, certain geo- potential of the combined policies, ARC adjusted graphic regions, more consolidated markets, or spe- estimates for each to reflect potential overlap. cific service areas may be the heart of the problem. For the baseline projections, ARC started Data would be collected to enable state or local with projections of national health expenditures, communities to establish baselines, set targets, and including spending and enrollment by major payer adjust policies as needed. A spending target would categories, from the Centers for Medicare and also guide any multipayer negotiations of payment Medicaid Services Office of the Actuary. In recogni- methods and rates. tion of the fact that Congress has consistently post- A policy that includes provisions for adjust- poned the scheduled SGR cuts in Medicare physi- ment of policies over time and allows for focusing cian fees, ARC used an alternative baseline that on specific geographic areas or services if trends increases fees by 1 percent in 2013 and then holds exceed the target would provide impetus to act and base physician fees at their 2013 level under the collaborate. A well-designed policy could enable tar- assumption that Congress will continue to postpone geted action at the geographic or service area or the cuts throughout the decade. This would have the within local markets, with flexibility to refocus over cumulative impact of raising total Medicare spend- time as needed. ing by some $334 billion dollars from 2014 through 2023, compared with current law. This alternative baseline is similar in concept to the “extended alter- ESTIMATING THE IMPACT OF THE POLICY native fiscal scenario” presented by the Congressional OPTIONS Budget Office in their annual Long-Term Budget To estimate the potential impact of combining pay- Outlook.61 ment reform, positive consumer incentives to make The ARC estimates draw on existing evi- high-value choices, and marketwide policies, we dence regarding likely responses to policy changes. detailed illustrative policies that correspond to the As always with estimates of projected changes, actual strategies described above. Since the spending target impacts would depend on the specifics of policy pro- actions would allow for adjustment pending the posals, how rapidly and well policies could be imple- impact of the other policies, we did not delineate a mented, and behavioral responses across markets. specific policy to achieve the target of holding health All estimates assume policies are enacted in care spending growth to no more than economic 2013 and in place starting in 2014, with accelerating growth. In other words, the spending target policy impact over time as they take hold and spread across was not scored. public and private payers. A separate technical docu- The Commonwealth Fund contracted with ment provides assumptions and data used to model the Actuarial Research Corporation (ARC) to esti- the potential impact and studies used to inform the mate the potential cumulative effects if all policies specifications.62 were in place starting in 2013, with first-year impacts in 2014. ARC estimated the incremental www.commonwealthfund.org31 THE POTENTIAL IMPACT OF THE slower growth in public employee health care costs. COMMISSION’S POLICY OPTIONS And private employers would save an estimated Analysis indicates that the policies consistent with $189 billion as a result of lower costs per person for the reforms discussed above offer the potential to their employees and retirees. slow and stabilize health spending, with significant Analysis by strategic area indicates that the savings across payers compared with projected bulk of potential savings would result from payment spending over the next decade. By combining pay- reform and the resulting delivery system change ment reform to accelerate delivery system innova- (Exhibit 7). Together, these policies account for tion, initiatives to engage consumers to make high- $1.333 trillion of the estimated $2 trillion in poten- value choices, and policies to lower administrative tial cumulative savings. Engaging consumers to make costs and improve the way health care markets func- high-value choices about their care and giving them tion, total national spending could be reduced by a better information and positive incentives to receive cumulative $2.0 trillion from 2014 through 2023, if care through high-value care systems and care teams all were enacted together as part of a unified, syner- could achieve an additional net savings of $189 bil- gistic strategy (Exhibit 6). lion over the decade. Enabling consumers to make Looking at potential savings by major payer informed choices would also align incentives with category, the analysis indicates there would be sub- payment reform to provide support and synergy for stantial savings for both public and private payers the development of higher-value care networks. compared with baseline projections as policies spread Focused efforts to improve the way health across markets. The federal government would save care markets function would reduce excessive admin- an estimated $1.036 trillion over the decade as a istrative costs and ensure that care systems are held result of slower growth in spending per beneficiary accountable for costs as well as health outcomes for Medicare ($528 billion) and Medicaid (federal across all payers. Enacting strong measures to sim- share: $369 billion). Households would save an esti- plify and reduce administrative costs could poten- mated $537 billion as a result of lower premium and tially reduce net spending by $481 billion. Although out-of-pocket costs for medical care. State and local malpractice savings would likely be small, reforms governments would save $242 billion, primarily as a could reduce costs for providers and improve the sig- result of slower growth in their share of Medicaid nals they receive from health care markets. costs (state share: $236 billion), but also because of Exhibit 6. Synergistic Strategy: Potential Cumulative Savings Compared with Current Baseline Projection, 2013–2023 Net impact in $ billions* Federal State and local Total NHE government government Private employers Households 2013–2018 –$686 –$345 –$84 –$66 –$192 2013–2023 –$2,004 –$1,036 –$242 –$189 –$537 Note: NHE = national health expenditures. * Net effect does NOT include potential impact of spending target policy. Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. Current baseline projection assumes that the cuts to Medicare physician fees under the sustainable growth rate (SGR) formula are repealed and basic physician fees are instead increased by 1% in 2013 and held constant from 2014 through 2023. 32 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System Exhibit 7. Synergistic Strategy: Cumulative Savings, 2013–2023 Payment reforms to accelerate delivery system innovation ($1,333 billion) Pay for value: replace the SGR with provider payment incentives to improve care Strengthen patient-centered primary care and support care teams Bundle hospital payments to focus on total cost and outcomes Align payment incentives across public and private payers Policies to expand and encourage high-value choices ($189 billion) Offer new Medicare Essential plan with integrated benefits through Medicare, offering positive incentives for use of high-value care and care systems Provide positive incentives to seek care from patient-centered medical homes, care teams, and accountable care networks (Medicare, Medicaid, private plans) Enhance clinical information to inform choice Systemwide actions to improve how health care markets function ($481 billion) Simplify and unify administrative policies and procedures Reform malpractice policy and link to payment* Target total public and private payment (combined) to grow at rate no greater than GDP per capita** Notes: SGR = sustainable growth rate formula; GDP = gross domestic product. * Malpractice policy savings included with provider payment policies. ** Target policy was not scored. The above estimates of potential savings specifically to achieve the spending growth target. indicate that systemwide payment reforms, positive Together, the policies described above would reduce incentives for consumers to make high-value choices, total national spending by a cumulative $2 trillion, and concerted efforts to reduce administrative costs with health spending amounting to an estimated 19 could potentially hold spending growth to no more percent of GDP by 2023 compared with the current than GDP growth per capita for most of the decade, projection of 21 percent (Exhibit 8). without resorting to additional policies implemented Exhibit 8. Projected National Health Expenditures (NHE), 2013–2023: Potential Impact of Synergistic Strategy NHE in $ trillions $6.0 Current baseline NHE projection $5.5 Projected NHE net of policy impacts $5.0 $5.1 $4.0 $2.9 $3.0 $2.0 NHE as percentage of GDP— Current projection: 18% in 2013g21% in 2023 $1.0 Under unified strategy: 18% in 2013g19% in 2023 Cumulative NHE savings under synergistic strategy: $2.0 trillion $0.0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Note: GDP = gross domestic product. Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. Current baseline projection assumes that the cuts to Medicare physician fees under the sustainable growth rate (SGR) formula are repealed and basic physician fees are instead increased by 1% in 2013 and held constant from 2014 through 2023. www.commonwealthfund.org33 The nation is projected to spend about 18 exchanges. The analysis does not examine what percent of GDP on health care in 2013, the year could happen to private payer trends if dominant before these policies are assumed to be implemented. private payers were better able to leverage their pur- Thus, the synergistic policy approach comes close to chasing power by paying for value or through multi- the goal of stabilizing spending growth to no more payer initiatives. than the growth of the economy, with a significant If the pace of delivery system change acceler- reduction in the currently projected rate of growth. ated and private-payer payment policies spread to Analysis indicates there would not be a need for fur- slow private per-person spending growth and bring ther action to enforce the spending growth and share it more in line with economic growth, the estimates of GDP target until near the end of the decade here indicate that national health expenditures as a (2021) if policies were implemented quickly and share of GDP by 2023 would be held near the 2013 effectively. level of 18 percent. In other words, all estimates in the exhibits The analysis further suggests that policies represent the net impact of the specified payment, would need to be adjusted or expanded over time to consumer incentives, malpractice, and administra- achieve the target at the end of the decade—but the tive-cost reforms without resorting to additional nation would be within reach of the goal. In other actions to reach the spending target. Examining the words, it should be possible to achieve the target if potential impact by year, the analysis indicates that all sectors pull together and are accountable for the the combined impact of payment reforms, incentives total costs of care, further enhancing the effective- for consumers, and market reforms would poten- ness of these policies. tially hold the line on national spending as a share of It is important to note that despite the sub- GDP at 18 percent up to 2021. And throughout stantial savings produced by these policies over 10 most of the decade, the growth in Medicare years, the health sector would still grow—with ade- spending per beneficiary would be below GDP quate resources to adopt innovations in care delivery, growth per capita, with substantial net savings com- introduce new medical breakthroughs, and ensure pared with current projections. However, at the end care for an aging population. Even under these poli- of the decade an aging population would lead to cies, health spending is projected to increase from increases in Medicare and Medicaid spending above $2.9 trillion in 2013 to $5.1 trillion in 2023—an projected GDP growth without further health sys- increase of more than 75 percent over the decade. In tem innovation. particular, national spending on both hospitals’ and Notably, although private spending per physicians’ services would continue to grow, with the insured enrollee would slow, it would continue to potential for net revenue growth as administrative exceed GDP annual growth and Medicare per bene- costs decline (Exhibit 9). This would also be true if ficiary growth throughout the decade as it has in total national spending stabilized to a constant share recent years. In specifying policies, none of the illus- of GDP, as long as the economy continued to grow. trative policies explicitly aimed at controlling the With an aging population, there will be a prices private payers pay for care or limiting the rate need in the future for community-based care teams of increase. Instead, the policies focused on private that include nurses and medical assistants to ensure payers adopting similar payments through insurance timely access to care. By eliminating duplication, 34 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System Exhibit 9. Impact of Synergistic Strategy on Projected Annual Hospital and Physician Spending, 2013–2023 Spending in $ billions $2,000 Hospital (baseline) Hospital (net of policy impacts) Projected growth of hospital spending, $1,750 $1,646 2013–2023: Physician (baseline) l Baseline projection: 82% $1,500 Physician (net of policy impacts) (6.2% annual) $1,509 l Net of policy impact: 67% $1,250 $1,122 (5.3% annual) $1,000 $902 Projected growth of physician spending, $1,055 2013–2023: l Baseline projection: 88% $750 (6.5% annual) $500 $597 l Net of policy impact: 77% (5.9% annual) $250 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. Current baseline projection assumes that the cuts to Medicare physician fees under the sustainable growth rate (SGR) formula are repealed and basic physician fees are instead increased by 1% in 2013 and held constant from 2014 through 2023. inappropriate care, and excessive administrative CONCLUSIONS costs, and by providing safer care, it should be possi- The analysis described above indicates that it should ble to organize the care system around patients’ be possible to stabilize health care spending growth needs and redirect resources away from waste to in ways that achieve substantial savings in federal essential, high-value care. spending as well as savings for households, busi- The substantial—but slower, more stable, nesses, and state and local governments—all the and better targeted—growth in health spending while adhering to the principles and goals of a high would continue to allow for expansion of services to performance health care system that is accessible to those who are now uninsured and underinsured, the all. Analysis of potential policy action in the key ongoing adoption of information technology, the strategic areas identified by the Commission indi- introduction of new prescription drugs and medical cates there is potential to substantially reduce spend- breakthroughs, and an increase in compassionate ing growth through a combination of reforming pro- care for the most vulnerable, including low-income vider payment, engaging consumers to make high- individuals, the elderly, and the disabled. It also pro- value choices, improving the way health care markets vides for jobs in the health sector, stable incomes for function, and holding markets accountable. health care professionals, and fiscal viability for effi- In combination, these policies could lead to cient hospitals providing essential services. wiser and more efficient expenditures of health care dollars, while also enhancing the benefits of health care. Further, the projected savings could be redi- rected to other essential sectors of the economy. By stabilizing growth, health care would no longer deprive other essential sectors of the economy of the resources required to invest in education, research, www.commonwealthfund.org35 innovation, and infrastructure development, all of future premium costs as well as lower out-of-pocket which are needed for a thriving economy in the costs, including gains from more efficient insurance future. coverage of Medicare beneficiaries. The slower Freeing up $2 trillion that would otherwise growth of medical care costs would reduce out-of- have been spent on the health sector over the next pocket costs as the delivery system responds with 10 years because of the rising costs of care could also enhanced high-value care and care systems. The sub- result in positive reverberations across the economy. stantial net savings for Medicare’s elderly and dis- It would ease burdens on U.S. businesses and poten- abled beneficiaries depend on the provision of a tially raise incomes for the working population Medicare Essential option for beneficiaries that through a return to economic growth, while better would complement provider payment policies and meeting the needs of an aging population. reduce costs for beneficiaries. In the end, reduced Notably, the policies could achieve substan- health spending by federal, state, and local govern- tial federal budget savings compared with projected ments and private employers also would accrue to trends while at the same time preserving access to households, which ultimately bear the burden of ris- care and affordability and avoiding shifting costs to ing health spending through higher taxes, reduced households, business, or state and local governments. wages, or direct out-of-pocket costs. The analysis further indicates that potential federal Overall, the analysis indicates the potential savings could more than offset the $334 billion of aiming policy efforts at the forces driving up 10-year costs of repealing scheduled Medicare cuts medical care costs for the nation, rather than a nar- to physicians—yielding substantial net federal sav- row short-term focus on federal programs only. The ings—while aligning payment more closely with sys- policy set outlined by the Commission in this tem goals. Achieving these savings, however, requires report, with its three-pronged strategic approach, reforms of current payment policies, with future would interact synergistically to address the forces increases dependent on development of more that are driving up costs without adding value across accountable care systems and high-value care teams. the health system and would accelerate progress to a The analysis also assumes that Medicare policy more patient-centered, high-quality, innovative would recalibrate payment rates as appropriate, health care delivery system. depending on market trends, especially where prices The fact that private insurance costs per paid by private payers have moved lower than his- enrollee have been rising more rapidly than public toric Medicare rates. This would require enabling per-enrollee costs, and that Medicare costs per bene- more flexible payment authority to respond to mar- ficiary are growing more slowly than GDP per cap- ket changes. ita, further highlights the need for joint public- and The analysis indicates that families would be private-payer action. Integrated care systems, which the major winners over time from such a strategic produce better health outcomes at lower costs, have approach, with potential for better care outcomes as yet failed to spread because health care markets do and experiences as well as an estimated $537 billion not support movement in that direction. With the in direct savings over 10 years, compared with pro- advent of promising payment initiatives in the pri- jected trends. These savings are the result of lower vate sector, as well as in some states, there is an 36 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System opportunity to accelerate this trend by having improved quality and patient-centeredness, greater Medicare, Medicaid, and private payers collaborate accountability for both health outcomes and treat- to align provider incentives and address market ment costs, and enhanced population health. A high dynamics that are barriers to moving forward. performance health system is not only consistent In summary, analysis of the set of policies with, but also necessary for, stabilizing health care identified by the Commission indicates the potential spending into the future. to achieve the goal of stabilizing health care spend- As looming federal deficits intensify the call ing growth if policies are applied broadly and effec- for action, it will be critical that health care spending tively and public and private payers act in concert— decisions are guided by the goal of creating a high and if payment reforms accelerate delivery system performance health system. To achieve this goal, pol- changes and address market forces that drive up icymakers will need to come together to act on costs without increasing value. behalf of the nation. The federal government is in a Moving from concept to action, however, unique position to partner with states and private will require that national policy leaders reach con- payers. In addition, through Medicare, it plays a sensus that health care cost growth is a national con- critical role for all families across the United States. cern, not just a federal budget concern. The need for The analysis of the potential yield to the federal gov- action applies not only to the federal government, ernment and the nation if policies that aim to but also to state and local governments, businesses, address systemic concerns and accelerate care system and households, all of which are under increasing innovation are enacted indicates that federal health financial pressure as a result of the growth in health programs could achieve substantial savings with a spending. Ideally, all of these stakeholders would unified strategy. work together toward the same goals: simplifying the There is the opportunity to act now, spurred health system; reducing administrative waste; chang- by concerns of future federal deficits. But it is essen- ing the way we pay for care to hold care systems tial to act wisely. The Commission offers this unified accountable for population health while providing strategy and exemplary policies as a framework flexibility to innovate; and leveraging the impact of pointing a way forward for federal, state, and private policy changes across payers. By pulling together to policy leaders as they confront health care costs. stabilize health spending, we have the opportunity to Building on the three pillars of payment reform, reduce the federal deficit, free up resources for state high-value consumer choice, and improved market and local governments, and make care and high- function, the nation has the potential to accelerate value health insurance more affordable for families health care innovation, ensure access for all, and at and employers. the same time achieve not only a more affordable, Further, the overarching goal should be mov- but also a better and higher-performing health ing the U.S. health system toward a higher level of system. performance, with access to affordable care for all, www.commonwealthfund.org37 NOTES 10 To project premiums, we used the Office of the Actuaries projected average increase to 2021 applied to 1 The Commonwealth Fund Commission on a High the 2012 total premium for family plans sponsored by Performance Health System, Why Not the Best? Results employers. To project median incomes for the under-65 from the National Scorecard on U.S. Health System population, we used average annual growth in incomes Performance, 2011 (New York: The Commonwealth Fund, for families (at least two people) in the Current Oct. 2011). Population Survey since 2001 and applied this constant 2 growth rate to future years. Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 11 C. Schoen, J. A. Lippa, S. R. Collins, and D. C. Radley, 2012 Annual Report (Washington, D.C.: Government State Trends in Premiums and Deductibles, 2003–2011: Printing Office, April 2012), 209, available at http://www. Eroding Protection and Rising Costs Underscore Need for cms.gov/Research-Statistics-Data-and-Systems/ Action (New York: The Commonwealth Fund, Dec. 2012). Statistics-Trends-and-Reports/ReportsTrustFunds/ 12 Downloads/TR2012.pdf. Ibid. 13 3 Note that exchange subsidies are not scheduled to For a synthesis of the issues related to U.S. health begin until 2014. Congressional Budget Office, The 2012 spending, see P. B. Ginsburg, High and Rising Health Care Long-Term Budget Outlook (Washington, D.C.: CBO, Costs: Demystifying U.S. Health Care Spending, Research June 2012). Synthesis Report No. 16 (Princeton, N.J.: Robert Wood Johnson Foundation, Oct. 2008). 4 D. Elmendorf, director, Congressional Budget Office, 14 Letter to John Boehner, Speaker, U.S. House of See, for example, T. Spiro, E. Oshima Lee, and E. J. Representatives, on the direct spending and revenue Emanuel, “Price and Utilization: Why We Must Target effects of H.R. 6079, the Repeal of ObamaCare Act, July Both to Curb Health Care Costs,” Annals of Internal 24, 2012. Medicine, Oct. 16, 2012 157(8):586–90. 15 5 See Boards of Trustees, 2012 Annual Report, 2012. G. F. Anderson, U. E. Reinhardt, P. S. Hussey et al., “It’s the Prices, Stupid: Why the United States Is So Different 6 J. Holahan and S. McMorrow, “Medicare and Medicaid from Other Countries,” Health Affairs, May/June 2003 Spending Trends and the Deficit Debate,” New England 22(3):89–105; International Federation Health Plans, Journal of Medicine, Aug. 2, 2012 367(5):393–95. 2011 Comparative Price Report: Medical and Hospital Fees 7 by Country, http://www.ifhp.com/documents/2011iFHPP Note that all three of these rates are below the pro- riceReportGraphs_version3.pdf. jected rate of increase for overall national health expen- ditures. This is because the proportions of the popula- 16 C. Schoen et al., The U.S. Private Medical Care Market tion covered by Medicare and Medicaid—who are con- Place: Rising Costs and Pricing Incoherence and What to siderably more expensive than people covered by pri- Do About It (New York: The Commonwealth Fund, forth- vate employer-based insurance—are expected to rise, coming 2013). increasing overall per capita spending more rapidly 17 than any of its components. Massachusetts Division of Health Care Finance and Policy, Massachusetts Health Care Cost Trends: Price 8 All projections of health spending and GDP growth Variation in Health Care Services (Boston, Mass.: cited here are based on projections from the Centers for Commonwealth of Massachusetts, May 2011, revised Medicare and Medicaid Services Office of the Actuary as June 3, 2011). of January 2012; see http://www.cms.gov/Research- 18 Statistics-Data-and-Systems/Statistics-Trends-and- Health Care Cost Institute, Health Care Cost and Reports/NationalHealthExpendData/Downloads/ Utilization Report: 2011 (Washington, D.C.: HCCI, Sept. Proj2011PDF.pdf. 2012); Massachusetts Division of Health Care Finance and Policy, Massachusetts Health Care Cost Trends: Price 9 Kaiser Foundation and Health Benefit Research and Variation in Health Care Services, May 2011, revised June Educational Trust, Surveys of Employer Health Benefits, 3, 2011. 1999 to 2012, available at http://www.kff.org/insurance/ 19 ehbs-archives.cfm. A. D. Sinaiko and M. A. Rosenthal, “Increased Price Transparency in Health Care—Challenges and Potential Effects,” New England Journal of Medicine, March 10, 2011 364(10):891–94. 38 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System 20 See R. A. Berenson, P. B. Ginsburg, J. B. Christianson American Journal of Managed Care, Aug. 2010 16(8):607– et al., “The Growing Power of Some Providers to Win 14; and D. D. Maeng, J. Graham, T. R. Graf et al., Steep Payment Increases from Insurers Suggests Policy “Reducing Long-Term Cost by Transforming Primary Remedies May Be Needed,” Health Affairs, May 2012 Care: Evidence from Geisinger’s Medical Home Model,” 31(5):973–81; G. A. Melnick, Y. C. Shen, and V. Y. Wu, “The American Journal of Managed Care, March 2012 Increased Concentration of Health Plan Markets Can 18(3):149–55. Benefit Consumers Through Lower Hospital Prices,” 26 Health Affairs, Sept. 2011 30(9):1728–33; and J. Creswell J. Newhouse, “Medical Care Costs: How Much Welfare and R. Abelson, “A Hospital War Reflects a Bind for U.S. Loss?” Journal of Economic Perspectives, Summer 1992 Doctors,” New York Times, Dec. 1, 2012. 6(3):3–21. 27 21 D. Farrell, E. Jensen, B. Kocher et al., Accounting for the D. M. Cutler and M. McClellan, “Is Technological Change Cost of U.S. Health Care: A New Look at Why Americans in Medicine Worth It?” Health Affairs, Sept./Oct. 2001 Spend More (San Francisco, Calif.: McKinsey Global 20(5):11–29; and Farrell, Jensen, Kocher et al., Institute, Dec. 2008). Accounting for the Cost, 2008. 28 22 L. P. Casalino, S. Nicholson, D. N. Gans et al., “What Does T. Kibassi, “Innovations in Health Care Delivery: Lessons It Cost Physician Practices to Interact with Health from Entrepreneurs,” presentation to The Insurance Plans?” Health Affairs Web Exclusive, May 14, Commonwealth Fund, Nov. 2012. 2009, w533–w543; and E. Wikler, P. Basch, and D. Cutler, 29 See, for example, M. M. Mello, A. Chandra, A. A. Paper Cuts: Reducing Health Care Administrative Costs Gawande et al., “National Costs of the Medical Liability (Washington, D.C.: Center for American Progress, June System,” Health Affairs, Sept. 2010 29(9):1569–77; and A. 2012). B. Jena, S. Seabury, D. Lakdawalla et al., “Malpractice Risk 23 S. Guterman and S. C. Schoenbaum, “Getting from Here According to Physician Specialty,” New England Journal to There in Payment Reform: Necessary Practices and of Medicine, Aug. 18, 2011 365(7):629–36. Policies,” Journal of Ambulatory Care Management, Jan./ 30 See, for example, M. M. Mello, D. M. Studdert, E. J. March 2010 33(1):52–57. Thomas et al., “Who Pays for Medical Errors? An Analysis 24 Medicare Payment Advisory Commission, Report to the of Adverse Event Costs, the Medical Liability System, Congress: Measuring Regional Variation in Service Use and Incentives for Patient Safety Improvement,” Journal (Washington, D.C.: MedPAC, Dec. 2009); and J. D. of Empirical Legal Studies, Dec. 2007 4(4):835–60; and Reschovsky, A. Ghosh, K. A. Stewart et al., “Durable D. A. Squires, “Improving Patient Safety and Lowering Medical Equipment and Home Health Among the Malpractice Costs Through ‘No-Fault’ Compensation Largest Contributors to Area Variations in Use of Systems” (international innovation) (New York: The Medicare Services,” Health Affairs, May 2012 31(5): Commonwealth Fund, June 2012). 956–64. 31 See, for example, K. E. Thorpe, C. S. Florence, and P. 25 For a compilation of various studies employing a medi- Joski, “Which Medical Conditions Account for the Rise in cal home and chronic care model, see K. Grumbach and Health Care Spending?” Health Affairs Web Exclusive, P. Grundy, “Outcomes of Implementing Patient Centered Aug. 25, 2004 w4-437–w4-441; and C. S. Roehrig and D. Medical Home Interventions: A Review of the Evidence M. Rousseau, “The Growth in Cost per Case Explains Far from Prospective Evaluation Studies in the United States” More of U.S. Health Spending Increases Than Rising (Washington, D.C.: Patient-Centered Primary Care Disease Prevalence,” Health Affairs, Sept. 2011 Collaborative, Updated Nov. 2010); R. J. Reid, P. A. 30(9):1657–63. Fishman, O. Yu et al., “A Patient-Centered Medical Home 32 See G. F. Anderson, Chronic Care: Making the Case for Demonstration: A Prospective, Quasi-Experimental, Ongoing Care (Princeton, N.J.: Robert Wood Johnson Before and After Evaluation,” American Journal of Foundation, Feb. 2010). Managed Care, Sept. 2009 15(9):e71–e87; R. J. Reid, K. Coleman, E. A. Johnson et al., “The Group Health 33 D. Blumenthal, “Performance Improvement in Health Medical Home at Year 2: Cost Savings, Higher Patient Care—Seizing the Moment,” New England Journal of Satisfaction, and Less Burnout for Providers,” Health Medicine, May 24, 2012 366(21):1953–55. Affairs, May 2010 29(5):835–43; R. J. Gilfillan, J. Tomcavage, M. B. Rosenthal et al., “Value and the Medical Home: Effects of Transformed Primary Care,” www.commonwealthfund.org39 34 45 C. White, “Health Care Spending Growth: How Different Specific criteria to identify overpriced services could Is the United States from the Rest of the OECD?” Health include: services with unusually large increases in vol- Affairs, Jan./Feb. 2007 26(1):154–61. ume, services that are ordered and provided by the 35 same practitioner, and services provided together rou- See Anderson, Chronic Care: Making the Case, 2010. tinely in the course of the same treatment. 36 For a discussion of these elements, see Commission on 46 E. Emanuel, N. Tanden, S. Altman et al., “A Systemic a High Performance Health System, The Path to a High Approach to Containing Health Care Spending,” New Performance U.S. Health System: A 2020 Vision and the England Journal of Medicine, Sept. 6, 2012 367(10): Policies to Pave the Way (New York: The Commonwealth 949–54. Fund, Feb. 2009). 47 37 For examples, see Maeng, Graham, Graf et al., “Reducing See K. Davis and S. Guterman, “Achieving Medicare and Long-Term Cost,” 2012; and Reid, Coleman, Johnson et Medicaid Savings: Cutting Eligibility and Benefits, al., “The Group Health Medical Home,” 2010. For refer- Trimming Payments, or Ensuring the Right Care?” The ences and summary of other studies see: J. Holahan, C. Commonwealth Fund Blog, July 13, 2011. Schoen, and S. McMorrow, The Potential Savings from 38 Enhanced Chronic Care Management Policies D. M. Berwick, T. W. Nolan, and J. Whittington, “The (Washington, D.C.: Urban Institute, Nov. 2011), available Triple Aim: Care, Health, and Cost,” Health Affairs, May/ at http://www.urban.org/uploadedpdf/ June 2008 27(3):759–69. 412453-The-Potential-Savings-from-Enhanced-Chronic- 39 The major pieces of legislation referred to here are the Care-Management-Policies-Brief.pdf. American Recovery and Reinvestment Act of 2009 and 48 These include N. McCall, J. Cromwell, and C. Urato, the Patient Protection and Affordable Care Act of 2010. “Evaluation of Medicare Care Management for High 40 K. Davis, “What’s Working to Control Costs,” The Cost Beneficiaries (CMHCB) Demonstration: Commonwealth Fund Blog, June 12, 2012. Massachusetts General Physicians Organization (MGH),” (Research Triangle Park, N.C.: RTI International, Sept. 41 Choosing Wisely, an initiative of the ABIM Foundation, 2010); C. Boult, L. Reider, B. Leff et al., “The Effect of encourages physician–patient discussion to avoid dupli- Guided Care Teams on the Use of Health Services: cative, ineffective, or possibly unnecessary tests and Results from a Cluster-Randomized Controlled Trial,” treatments. Choosing Wisely publishes “Five Things Archives of Internal Medicine, March 14, 2011 171(5):460– Every Patient and Doctor Should Question” lists from 66; and Congressional Budget Office, High-Cost Medicare numerous medical specialty societies. Available at Beneficiaries (Washington, D.C.: CBO, May 2005). http//www.Choosing Wisely.org. 49 See M. A. Zezza, S. Guterman, and J. Smith, “The 42 Centers for Medicare and Medicaid Services, Office of Bundled Payment for Care Improvement Initiative: the Actuary, National Health Expenditure Data, accessed Achieving High-Value Care with a Single Payment,” The at http://www.cms.gov/Research-Statistics-Data-and- Commonwealth Fund Blog, Jan. 7, 2012; R. A. Paulus, K. Systems/Statistics-Trends-and-Reports/ Davis, and G. D. Steele, “Continuous Innovation in NationalHealthExpendData/index.html, July 2012. Health Care: Implications of the Geisinger Experience,” 43 Health Affairs, Sept./Oct. 2008 27(5):1235–45; and L. N. S. Guterman, “Medicare Physician Payment: It’s Time for Newcomer, ”Changing Physician Incentives for Cancer Real Reform,” The Commonwealth Fund Blog, Nov. 3, Care to Reward Better Patient Outcomes Instead of Use 2011. of More Costly Drugs,” Health Affairs, April 2012 44 M. Kent Clemens, “Estimated Sustainable Growth Rate 31(4):780–85. and Conversion Factor, for Medicare Payments to 50 Choosing Wisely, an initiative of the ABIM Foundation, Physicians in 2013,” Centers for Medicare and Medicaid promotes discussion between physicians and patients Services, Office of the Actuary, March 2012, available at to help determine the most effective care for each indi- http://www.cms.gov/Medicare/Medicare-Fee-for- vidual patient. See http//www.Choosing Wisely.org. Service-Payment/SustainableGRatesConFact/ Downloads/sgr2013p.pdf. 40 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System 51 60 The Commonwealth Fund Commission on a High These include: electronic submission standards and Performance Health System, The Performance streamlined rules for consistent format and data con- Improvement Imperative: Utilizing a Coordinated, tent to comply with HIPAA. Examples include eligibility Community-Based Approach to Enhance Care and Lower verification and electronic funds transfers. The adoption Costs for Chronically Ill Patients (New York: The of standards are expected to save providers billions Commonwealth Fund, April 2012). over the next 10 years. Since most of the benefits 52 accrue to providers rather than plans, however, these K. Davis, C. Schoen, and S. Guterman, “Medicare may be difficult to enforce without further action. The Essential: Enhancing Value in Medicare by Providing Affordable Care Act also limits the administrative over- Better Protection and Encouraging Better Choices,” draft head for health insurance plans with provisions for submitted for journal review, Oct. 2012. thresholds for medical loss ratios, requiring plans to 53 rebate excess overhead charges. The thresholds have K. Davis, M. Moon, B. S, Cooper, and C. Schoen, provided strong incentives for plans to reduce overhead “Medicare Extra: A Comprehensive Benefit Option for costs to ensure profit margins. Medicare Beneficiaries,” Health Affairs Web Exclusive, Oct. 4, 2005, w5-442–w5-454. 61 See, for example, CBO, 2012 Long-Term Budget Outlook, 54 2012. Currently, the benchmarks used to set Medicare Advantage plan payments are set well above projected 62 J. Mays, D. Waldo, R. Socarras et al., Technical Report: costs under traditional Medicare, and plans alone Modeling the Impact of Health Care Payment, Financing, receive an extra payment if their costs are below that and System Reforms (prepared for The Commonwealth benchmark level. Fund by Actuarial Research Corporation, Jan. 2013). 55 E. W. Paxton, M. Inacio, T. Slipchenko et al., “The Kaiser Permanente National Total Joint Replacement Registry,” The Permanente Journal, Summer 2008 12(3):12–16. 56 S. Campbell, Promotional Spending for Prescription Drugs, CBO Issue Brief (Washington, D.C.: Congressional Budget Office, Dec. 2009). 57 Health Care Cost Institute, Health Care Cost, 2012; and Massachusetts Division of Health Care Finance and Policy, Massachusetts Health Care, 2011. 58 Healthcare Administrative Simplification Coalition, Bringing Better Value: Recommendations to Address the Costs and Causes of Administrative Complexity in the Nation’s Healthcare System, HASC Summit Final Report, July 2009; and UnitedHealth Center for Health Reform and Modernization, Health Care Cost Containment—How Technology Can Cut Red Tape and Simplify Health Care Administration, Working Paper 2, UnitedHealth Group, June 2009. 59 E. Wikler, P. Basch, and D. Cutler, Paper Cuts: Reducing Health Care Administrative Costs (Washington, D.C.: Center for American Progress, June 2012). www.commonwealthfund.org41 1150 17th Street NW One East 75th Street Suite 600 New York, NY 10021 Washington, DC 20036 Tel 212.606.3800 Tel 202.292.6700 www.commonwealthfund.org 42 CONFRONTING COSTS: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System