State Actions to Address Health Care CostsDec 1, 2020
Health Policy Journal Club, December 2020
State Actions to Address Health Care Costs
Introduction to the state health care cost conundrum
- Jones DK, Pagel C. Bipartisan approaches to tackling health care costs at the state level. Milbank Memorial Fund. October 2020.
- Understanding the Health Care Cost Conundrum in 2020. National Academy for State Health Policy.
- This tracker includes broad categories of state legislative actions to lower health system costs.
Total cost of care benchmark approaches
- Waugh L, McCarthy D. How the Massachusetts health policy commission is fostering a statewide commitment to contain health care spending growth. March 5, 2020. Commonwealth Fund.
- Massachusetts residents paying more out of pocket for health care, report finds. Masslive. October 8, 2019.
- Overview of state health care cost growth benchmark programs
- Waldrop T, Calsyn M. State policy options to reduce prescription drug spending. Center for American Progress. February 13, 2020.
- Prescription Drug Affordability Review Board Q&A. National Academy for State Health Policy.
- This state tracker covers bills related to lowering rx drug costs.
Key takeaways from the readings
The primary driver of health care spending is price increases rather than utilization.
The US spends $10k per capita on health care vs the OECD average of $3.9k per capita. This amounts to 17.7% of the GDP in the US as of 2018 (National Academy for State Health Policy, 2020).
- The primary driver of health care spending is price increases rather than utilization. In a number of areas cost is increasing despite utilization falling. Drug spending is growing the most rapidly though most dollars are spent on hospitals and providers.
- Increasing market consolidation increases prices but not quality.
- Increasing proportions of household budgets are being spent on health care (particularly higher co-pays and deductibles), more in communities of color. The growth in health spending is outpacing wages.
- The burden of high health care costs impacts individuals as taxpayers, employees, employers, and consumers.
- The list of potential state actions to address health care costs is broad, including: increasing hospital financial transparency, negotiating hospital prices, controlling costs through restrictions on facilities fees and out of network charges, limiting costs over time through total costs of care benchmarks, implementing all payer or global hospital budget models, opposing consolidation through legal action and transaction approvals.
Comments from discussion participants:
- Children are often left out of the overall cost conversation because they comprise a smaller portion of health care spending and the return on investment of prevention and wellbeing interventions has a much longer time horizon.
- With hospitals playing a key role in tackling the COVID-19 pandemic, there is less political will to focus on hospital costs and margins right now.
- The rate of change of subsets of health care cost growth seems to gain more attention than what comprises the bulk of costs (i.e., pharmacy as an area of focus rather than hospital and provider costs).
- Given health care costs per capita and as a proportion of GDP in the United States, we should be looking outside of our borders for solutions, particularly given the far better outcomes in numerous other OECD countries.
- There is an inherent conflict between focusing on the best care for every individual as an individual versus determining the best overall expenditure of funding on health and related matters in order to maximize population health. The US system is driven by the former.
- Until our health care system is redesigned for the purpose of relieving suffering and creating healthier people, it will continue to do what it is designed to do: generate expenditures that lead to wealth accumulation for the winners.
- The investments that we believe will reduce healthcare costs need to be made upstream in primary care and social services, not in the hospitals and specialist organizations where most of the health money is spent today. As with children, they generally have longer time horizons for return on investment. It is therefore not in the business interests of today’s recipients to make those investments.
Legislators can be divided into 3 groups with different priorities on addressing health care costs.
Based on a survey of state legislators on their health policy priorities related to costs in 2019 and subsequent in-depth data gathering in 4 states (CO, MI, SC, VT), Jones & Pagel concluded:
- There are 3 parties, not 2: predominantly Democrats, predominantly Republicans, and moderates
- Views on health care costs are not inherently partisan. There is no clear relationship to how the groups view costs, which the authors conclude is a good thing: if how health care costs are viewed is not ideological or “tribal”, it is also something that can be changed.
- All groups prioritize the costs of pharmaceuticals.
- Legislators are divided over whether solutions should focus on individuals or systems.
- Pockets of expertise are bridging divides. There is a lack of understanding of health care costs by most legislators, but it isn’t necessary to have deep understanding across the board if there is a core group of policymakers who can be trusted sources of information. The conversation could be more accessible across parties by explicitly making the connection between individual and systemic costs.
- Ways forward can include a focus on affordability and transparency.
State spotlight: Massachusetts established a Health Policy Commission to examine drivers of health care spending and set a health care cost growth benchmark.
The Massachusetts Health Policy Commission (HPC) was authorized and funded through legislation in 2012 and tasked with setting a health care cost growth benchmark, incentivizing alternative payment models, and overseeing the health insurance market (Waugh & McCarthy, 2020).
- Other responsibilities of the HPC include analyzing who and what is driving health care spending, making data driven policy recommendations, and supporting regulatory action by other state agencies.
- The HPC is authorized to examine provider transactions and spending and levy penalties up to $500k for noncompliance with performance improvement plans (this authority has not yet been utilized).
- The HPC consists of a governing board (11 commissioners appointed by the governor and attorney general, 60 staff, $8.7m annual budget) and an advisory council (includes health plans, industry associations, employers, patient advocates, providers). Funding is appropriated from the legislature from assessments on hospitals, ambulatory surgery centers, and payers.
- A sister agency (the Center for Health Information and Analytics) supplies data to the HPC broken down by payer and services. Some have suggested combining the two agencies could decrease costs.
- From 2013-2017, average annual health care cost growth came in below the benchmark of 3.6%. In 2018, it was equal to a revised benchmark of 3.1%. A slowdown in growth preceded the creation of the HPC, complicating evaluation and determination of the role of the HPC in these trends.
- However, from 2016-2018, patient cost sharing increased 6.1%, about 2x the rate of inflation and wages (Masslive, 2019).
- Lessons learned and insights for other states include:
- Focus on total spending growth as well as components to have a whole system perspective and avoid cost shifting
- Set a reasonable spending growth target
- Consider how other policy goals intersect with the growth target
- Build data driven process to track progress to cost containment goals (may require supplementing an existing all-payer claims database)
- Seek value by balancing cost and quality
- Design commission with appropriate scope and authority
- Consider how to engage and represent stakeholders
Comments from discussion participants:
- The Colorado Commission on Affordable Healthcare was a bipartisan commission tasked with coming up with solutions to rising health care costs. After the 2016 election, much the spirit of bipartisanship changed and momentum was lost.
- The Massachusetts approach is fundamentally only about total costs, not about quality and not about shifting investment into primary care and prevention. It seems focused on persuading major hospital system players not to increase costs too much, rather than changing “anything under the hood”.
There are a variety of state policy options to lower prescription drug spending.
The majority of state prescription drug spending is through Medicaid and over 60% of this is through Medicaid Managed Care Organizations. Other sources of state drug spending include for public employees and retirees and persons who are incarcerated (Waldrop & Calsyn, 2020).
- States and drug manufacturers enter into rebate agreements under the Medicaid drug rebate program. States are required to cover all drugs of a manufacturer that enter into the agreement.
- Pharmacy benefit managers (PBMs) are employed by many health plans to administer their drug benefit. They process claims, make coverage decisions, and negotiate with manufacturers for discounts and rebates.
Options to lower Medicaid drug prices:
- Negotiate supplemental rebate agreements
- Enhance drug utilization review
Options to combine purchasing and negotiating power:
- Consolidate drug purchasing across programs and states
- Establish a common formulary using evidence of effectiveness
- Consolidate procurement of PBMs and other plan management services
- Regulate rebates with PBMs
- Purchase a subscription based purchasing model
Options to lower drug unit prices:
- Establish a drug affordability board (a model bill and FAQ for this are available from the National Academy for State Health Policy)
- Use reference pricing
- Maximize participation in the 340B program
- Promote the use of generics
- Reduce the cost of provider-administered drugs
- Import prescription drugs
Comments from discussion participants:
- There are currently threats to the 340B program, making it harder to use.
- High percentages of American prescriptions are not filled and/or refilled; this is often due to cost.
- PCPs do not have transparency on the cost to their patients for prescriptions they write.