Trick or treat! In anticipation of Halloween, we’ve chosen to treat you to a special version of the Going Below The Surface email, featuring a more in-depth look at health spending choices related to value and transparency (and not the ghostly kind).

Digging Deeper

Policymakers have put substantial resources behind proposals that seek to decrease costs via value-based payments and transparency, but the evidence shows these approaches may not actually be effective. In this month’s Digging Deeper, we discuss a recent article by economist Austin Frakt on value-based payment. We also take an expansive look at how policies aimed at transparency are not having the desired effect on prices.

Are Value-Based Programs the Answer?

Last month there was a nationwide debate about whether red meat is “bad” or “not bad,” based on a journal article that came down on the side of “not bad.” That spawned innumerable hot takes on beef, bias and nutritional epidemiology. The ultimate conclusion: the question is complex, the question is important and the answer is that more data is required.

That’s the framework needed to understand an article in The Incidental Economist and the New York Times from health economist Austin Frakt regarding whether value-based payments are useful or not.  His conclusion: programs that tout value, including those in the Affordable Care Act and Medicare, have had minimal impact on spending.

Frakt cited the Medicare Hospital Readmissions Reduction Program, which penalizes hospitals that have high rates of readmissions. Initial studies of the program suggest it was responsible for reduced hospital spending, but more recent analyses came to different conclusions.

But as in the red meat brouhaha, it’s shortsighted to assume that we can make a black-and-white judgment about value-based payments. While some evidence suggests a modest-at-best impact, the savings achieved by value-based programs depends on a host of complex and interlocking factors, not the least of which are the size of the incentives and the definition of value. As Sherry Glied, dean and professor at the Wagner School of Public Service at New York University, told Frakt, “We don’t even know what we mean by value. How do you pay for something when you don’t know what it is?”

Why It Matters: Definitions of “value” are so flexible that the term risks being cheapened: only 3% of payments around Medicare Hospital Readmissions Reduction Program are at risk, yet the program can claim that all payments are value-based. That limited risk could explain why the program has had modest success, at best, in controlling costs. This isn’t to say that value doesn’t work: we need to keep experimenting and carefully assess the evidence, paying especially close attention to how risk is allocated and what incentives may accelerate – or dampen – savings.

 Transparency: More Than Meets the Eye

Transparency is being pushed as a policy cure-all that leads to lower prices and better quality, while enabling patient choice, making it a focus of many Trump administration efforts to help control costs. However, several recently published studies looked below the surface and found that, for transparency to be useful to consumers, it needs to be far more nuanced than a number posted on a website. Otherwise, we risk creating a situation where patients – or policymakers – may not understand how to interpret or use the information.

  • Who should report prices? In the absence of federal action, many states have begun to pass transparency laws. The University of Southern California Center for Health Policy & Economics analyzed state-level drug-prices. The authors concluded that focusing only on drugmaker transparency – ignoring wholesalers, pharmacy benefit managers (PBMs), insurers and others – is of limited use in trying to understand what drives high drug prices. They suggest that policymakers require that all supply chain participants be required to report transactional price information.
  • Which price should be transparent? The RAND Corporation released a study showing large price discrepancies on hospital services between private health plans and Medicare. Ultimately, the authors conclude that transparency by itself is likely insufficient to reduce hospital prices because, with such a wide range of prices paid, presenting a single average price is unlikely to be meaningful for consumers.
  • Should transparency be local? Similarly, a study published in Health Affairs found significant price variations for outpatient services, even within local markets. While the authors argue that market-wide transparency would enable other stakeholders to capitalize on transparency data, thus enabling patients to be steered to lower cost services, they do not address whether and how easily patients themselves could use market-wide data to guide their decision-making.
  • How do patients act on transparency information? In the JAMA Forum, health economist Gail Wilensky argues that even if prices are transparent, patients still may not be able to act on the data. Patients rarely know precisely which services they will need during a hospital stay and are only able to comparison shop if they can schedule procedures in advance.
  • What are the solutions? A Health Affairs blog post notes that some hospitals are taking the lead and proactively making their prices easier for patients to access and understand. Even still, the authors point out that there is room for improvement, including: making price estimators available to all shoppers, not just established patients; leveraging optimized search functions; and using descriptive language, not meaningless bill codes.

Dialogues on Health Care Spending

Here are a few health spending tidbits you can discuss with your colleagues over the baskets of unloved and leftover Halloween treats in the break room:

  • As part of the Going Below The Surface Forum’s commitment to fostering productive dialogues on health spending, the group will host two town hall meetings with community health care leaders in early November in Columbus, Ohio, and Salt Lake City, Utah.
  • The debate over medical versus social spending in the United States continues on the webpages of the “Considering Health Spending” series in Health Affairs. This time, authors Judith Peres and Gerard Anderson push back on the results of an earlier study and highlight the inherent challenges of using international data to make direct comparisons to social spending in the United States. We previewed the first study in the August issue of this e-newsletter. (Note: The series is funded by the National Pharmaceutical Council and Anthem, Inc.)

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