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The most expensive piece of medical equipment is a doctor’s pen.
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Improving Value
Who’s the primary target of the intervention? It matters!
While better health care value for consumers is the intended goal of most policy interventions, its important to understand the primary stakeholder being acted upon. For example, many interventions such as high-deductible health plans, target the consumer seeking to make them better at identifying health care value. But a comprehensive approach would have to go far beyond just targeting consumers as they direct a minority of our health care dollars.
Consumers Direct a Small Portion of Our Spending
Consumers’ out-of-pocket spending amounts to 15 percent or less of our nation’s health care bill and only 7 percent of total spending is out of pocket on shoppable services.
Furthermore, this must be considered an outer bound. Adding a requirement that widely accepted quality metrics be available would narrow the range of shoppable services substantially.
A shoppable health care service must typically be scheduled in advance, there must be more than one provider in a market that can perform the service, and there has to be price data available for the different providers. Ideally, the patient also would have some information on each provider’s quality of care, or at least some reasonable assurance that quality does not vary much.
—White and Eguchi, Reference Pricing: A Small Piece of the Healthcare Price and Quality Puzzle, Research Brief No. 18, National Institute for Healthcare Reform (October, 2014).
What’s more, studies show that once a consumer initiates care with a provider, the following course of treatment doesn’t vary much regardless of financial incentives—presumably because the provider is directing the treatment.
CLICK HERE to see strategies that target consumers
- Environmental Nudges
- Public Prevention Programs
- Sin Taxes
- Provider Quality Reports
- Shared Decision Making
- Improve Comparative Information About Health Plans
- High Deductible Health Plans
- Wellness Incentives
- Drug Formulary Design
- Value-Based Insurance Design
- Reference Pricing
- Narrow Networks/Tiered-Provider Networks/Selective Contracting
Hospital Payments Represent 38% of Spending
As major players, hospitals are a key partner in terms of finding more value in our health care system. Further, hospitals have an important role in terms of the overall cost trend as there is strong evidence that in markets where hospitals have a lot of market power, prices are higher.
Exhibit: Spending by Type of Provider
Source: National Health Expenditures from CMS, Table 4
Doctors Account for 32 Percent of Spending but Their Impact is Much Greater
Physician and other professional services account for about one-third of our health care spending. But doctors actually direct most spending, regardless of who’s footing the bill. Physicians order the tests, prescribe the drugs and select the medical devices. Consumers rely heavily on their recommendations when they have to escalate their care and find a specialist or select from among alternative medical treatments. As such, reforming our delivery system to provide better value will require physician leadership, broad support for practice transformation, enhanced spending on comparative effectiveness research, better transparency and better alignment of financial (and non-financial) incentives facing clinicians.
"The most expensive piece of medical equipment is a doctor's pen."
CLICK HERE to see strategies that target physician and hospital providers
- Provider Quality Reports
- Shared Decision Making/Patient Activation
- Sunshine Laws/Disclosing Conflicts of Interest
- All-Payer Claims Datasets
- Promote Comparative-Effectiveness Research
- Value-Based Insurance Design
- Reference Pricing
- Narrow Networks/Tiered-Provider Networks/Selective Contracting
- Value-Based Purchasing/Pay for Performance (P4P)
- Hospital/Physician Rate Setting
- Increase Competition Among Providers
- Bundled Payments
- Capitation
- Global Budgets
- Determination of Need
- Address Fraud and Abuse
- Reduce Medical Errors
- Disease and Chronic Care Management
- Better Coordinated Care for Complex Cases
- Medical Homes
- Accountable Care Organizations (ACOs)
- Changes in Provider Scope of Practice
- Health Information Technology
Drugs Spending Likely to Grow
Spending on drugs accounts for 11 percent of overall spending but this share is expected to rise steeply in the near future due increased spending on specialty drugs and rising prices for generics. Patent protection and periods of “exclusivity” grant tremendous market power to drug manufacturers. Bringing about better value for our dollar will require separate interventions that directly target drug manufacturers.
CLICK HERE to see strategies that target drug manufacturers
Medical Device Manufacturers
Medical device manufacturers and other equipment makers represent a relatively small share of overall spending—about 4 percent. These manufacturers provide critical products to patients... and they are also incredible profitable industries. In part, this is because of fragmented and complex payment structures that have traditionally placed payers (e.g., insurers and self insured businesses) at an arms length from the negotiating process with manufacturers. Because of confidentiality agreements that manufacturers require hospitals to sign, the prices of the devices are cloaked in secrecy. This lack of transparency impedes hospitals from knowing whether they are getting a good deal. Again, this is a sector which will require its own targeted interventions in order to identify and obtain better value for health care consumers.
CLICK HERE to see strategies that target medical device manufacturers
Insurers are also a Target
Insurers and other large payers wield enormous leverage over providers through their contracting practices, although the relative market power between insurers and providers can place limits on their ability to extract concessions. There is good evidence that additional pressure on insurers to address cost and quality problems can yield results for consumers over and above what happens in the absence of these interventions.
CLICK HERE to see strategies that target insurers
Key Studies & Resources:
- Data from National Health Expenditures, CMS
- White, Chapin, and Megan Eguchi, Reference Pricing: A Small Piece of the Healthcare Price and Quality Puzzle, NIHCR Research Brief (October 2014).
- Health Care Cost Institute, Spending on Shoppable Services in Health Care (March 2016).
- Health Affairs Blog, "Health Care Consumerism: Can the Tail Wag the Dog?" (March 2, 2016).
EASY EXPLAINERS
Easy Explainers are short, two-page descriptions of cost drivers and strategies to address cost and quality issues.
RESEARCH BRIEFS
Research Briefs are longer evaluations and feature the latest research evidence on the effectiveness of different strategies to address cost and quality issues.
HEALTHCARE VALUE HUB
The Healthcare Value Hub can help you find free, timely information about policies and practices to achieve health systems that are equitable, affordable, and focused on the goals and needs of the people the system is meant to serve.
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