Healthcare Business News

Eliminating fee-for-service models would significantly reduce healthcare costs, report says

By Paul Demko
Posted: January 8, 2014 - 4:30 pm ET

The most significant way to drive down healthcare costs is by eliminating fee-for-service payment models, according to a report issued Wednesday (PDF) by the State Health Care Cost Containment Commission.

States must lead the way in coming up with creative, unique approaches to cutting costs, but moving towards a coordinated-care model should be a top priority for officials in every state, the panel concluded.

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The commission is co-chaired by former Utah Gov. Michael Leavitt, a Republican, and former Colorado Gov. Bill Ritter Jr., a Democrat. Ritter pointed out that states will soon deliver insurance to roughly 80 million individuals—including Medicaid enrollees, state employees and exchange customers—and therefore have the ability to strongly influence the marketplace.

“If you add up all those totals, it's a huge purchasing power at the state level, which can be used to transform the delivery system from fee-for-service to one that provides high-quality, low-cost care,” Ritter said at a news conference in Washington to discuss the report.

The commission, which also included officials from UnitedHealth Group, Blue Cross and Blue Shield of Massachusetts, Geisinger Health System, and Kaiser Permanente, came up with seven specific recommendations for states to follow. Most notably, it called on each state to establish an “alliance of stakeholders” to advocate for greater cost efficiencies in the healthcare system and track progress. Those state-based groups should include representatives from insurers, medical providers and consumers.

In addition, the commission called on states to collect better data, tracking quality and costs, so consumers can make more informed decisions when obtaining care. States should scrutinize regulations and medical malpractice laws to make sure that they're not unnecessarily driving up costs, it suggested. For instance, it called on states to implement policies that allow non-physicians to provide services at the full range of their skills, including the ability to bill customers.

“This is a long-term process,” said Leavitt, who served as secretary of HHS under President George W. Bush and now runs a consulting firm. “This is a five- to 10-year horizon we're talking about, not something that is going to happen quickly.”

The report comes at a time when there is mounting evidence that increases in healthcare costs have plateaued. In the fourth straight year of slow growth, healthcare costs rose by 3.7% in 2012, the CMS reported Monday, while the overall economy grew by 4.6%. Healthcare costs as a share of the nation's gross domestic product actually shrank to 17.2% from 17.3% the prior year—the first such reduction since 1997.

But experts differ on how much of that can be attributed to the Great Recession, and continuing sluggish economic growth, rather than changes in the healthcare marketplace, most notably implementation of the Patient Protection and Affordable Care Act. The fear is that costs will once again skyrocket if the economy picks up significantly.

Leavitt stressed that in recent history, whenever the focus has shifted from minimizing the cost of quality care, healthcare expenses have risen dramatically. What's required instead, he indicated, is a sustained emphasis on creating a more financially efficient marketplace. “We're not in a position at this moment to take our foot off the reform pedal,” Leavitt said.

Follow Paul Demko on Twitter: @MHpdemko

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