The key to my heart?
Stand 6 feet apart.
The key to my email?
High-quality health care reading material.

We hope this month’s issue (and our belated #healthpolicyvalentine) speaks to your heart as we examine different approaches to managing health spending and value measurement both from a policy and theoretical perspective. Though there are no easy answers, researchers are continuing to work toward identifying improved methods to evaluate and control our spending.

Digging Deeper

Value-based Payment in State-Level Systems

As states encourage the shift away from fee-for-service health care, they have different models to look to when incorporating value-based payment (VBP) into their health systems, according to a recent blog in Health Affairs that examined payment reform models.

Most popular is the creation of accountable care organizations (ACOs) in their Medicaid programs. Oregon took this approach, and it yielded a 7% reduction in spending across evaluation and management services, imaging, procedures, tests and inpatient care between 2012-2018.

Other states make regulations more flexible in order to make it easier to implement value-based care. In Maryland, the Health Services Cost Review Commission established alternative hospital rate-setting methods to promote value. An evaluation of the first three years of implementation found that the initiative yielded little savings in the pilot program, but saw hospital expenditures decline by $20.69 per beneficiary per month.

In Rhode Island, the state made regulatory changes in order to encourage preventive care through more spending on primary care services. Spending increased from 2009-2014, resulting in an increase of primary care physicians, but also a $76-per-enrollee reduction in fee-for-service spending on inpatient and outpatient care.

Why It Matters: These moves reflect the broad consensus that fee-for-service reimbursement systems reward inefficient or low-value care. When we spend $3 trillion a year on health care, making extra effort to reward high-value care and improve patient outcomes is a critical and worthwhile move. It is important to note, however, that each of these state approaches shows there is no one magic bullet to incorporating VBP into our health system, and that some strategies might work better for some systems than others.

To assess their strengths and weaknesses, ongoing evaluation and measurement of these interventions will be needed.  Though Oregon’s approach appears promising, with savings attributed to reductions in inpatient utilization rates, we have seen mixed evidence from ACOs in the long term for some conditions. Other types of regulatory flexibility, like that being tried in Maryland and Rhode Island, should be closely monitored over time to ensure that the intervention is actually yielding savings and increased quality of care.

The “Dos” and “Don’ts” of Budget Caps

Each year, states set health care spending growth limits, or budget caps. But even though many pursue that strategy, we see a state-by-state variation in how they do it. The way caps are implemented and enforced often differs, as does how spending growth is measured. These budget caps often have growth targets that use factors unrelated to health, such as inflation, productivity growth and GDP growth.

The budget cap strategy makes a difference in patient health outcomes. A new peer-reviewed study from researchers at the National Pharmaceutical Council and Research Triangle Institute Health Solutions found budget caps have the potential for creating savings but could also result in patient harm if not designed carefully.

One qualifier the team outlined was the need to use aggregated level health spending caps instead of service level (i.e., pharmaceutical level) limits. Pharmaceutical level caps could result in worse patient outcomes, particularly for conditions like ischemic heart disease, where actual drug spending has increased yet overall spending for the condition has declined because of better medicines.

Additionally, the research team recommended states use caps that are adjusted to consider both inflation and changes in population or prevalence specific disease areas instead of non-health factors like inflation alone or GDP growth as benchmarks for setting budget caps. Because health care spending is rising faster than these factors, these non-health targets are poor benchmarks.

Why it Matters: The study provides guidance on quality metrics and practices that can help budget decision makers, state medical directors and state legislatures understand which budget cap features have the potential to cause harm to patient health and it provides recommendations that could reduce the damage.

When spending levels become unsustainable, implementing a budget cap on the surface seems like an understandable next step. But policymakers should proceed cautiously and intentionally when developing these regulations. Not all budget caps yield the same results, as the research team identified. Patient outcomes can be unintentionally sacrificed in the name of responsible budgeting.

What We’re Reading

  • Dafny, L. Addressing Consolidation in Health Care Markets, Jan. 28, 2021. JAMA
    Health care consolidation often increases prices while decreasing patient satisfaction. So how can we ensure that consolidation occurs in a more positive way? According to this JAMA Viewpoint article, the Biden administration should address consolidation-oriented challenges by increasing funding for antitrust enforcement agencies, updating ways the government can evaluate mergers, and creating an interagency task force devoted to initiatives to enhance competition. Fixing health care markets, the author writes, is “essential not only to the physical and mental well-being of the population, but also to the economy.”
  • Cooper Z, Morton F. Health Care Reform: One (Percent) Step at a Time. Feb. 10, 2021. Health Affairs Blog
    In a Health Affairs blog post, Yale economists argued we should consider high U.S. health care costs a result of a series of small-scale problems that each incrementally raise health spending by a marginal amount. These “one percent problems” can add up, such as surprise medical billing, which can add $60 billion to our health system spending. As the authors colorfully noted, “there aren’t many country music songs written about incrementalism,” but strategic, small-scaled policy approaches can make a serious impact.

Dialogues on Health Spending

Going Below The Surface Forum partner organizations are hosting meetings this spring, offering opportunities to connect with fellow health care stakeholders. Mark your calendars now for an in-depth look at Real-World Data and the COVID-19 Pandemic, led by the National Health Council on Feb. 26; the AMGA Annual Conference, April 20-22; and the Pharmacy Quality Alliance’s 2021 Annual Meeting (online) on May 11-13.