CostContainmentinHealthcare
September2015
2
Cost Containment in Healthcare
September,2015
3
DEFINITION&CLASSIFICATION
WhatisaCostContainment?
v AlmostallEuropeancountrieshaveintroducedandimplementedcostcontainmentmeasuresthatkeepexpensesincheck.
v CostcontainmentisapracIceofmaintainingexpenselevelstoprevent
unnecessaryspendingorthoughMullyreducingexpensestoimprove
profitabilitywithoutlong-termdamage.
ClassificaIonofsetsofmeasures:
ü Budgetshi+ing,ü Budgetse.ng,
ü Controls,ü Compe55on.
BudgetShi5ing
² PossiblythemostcommonmethodofreducinghealthexpenditureononebudgetistotrytoshiSitontosomeotherbudget,especiallythatofthepaIentsthemselves.
ExpenditurecanbeshiSedontopaIentseither
1. Directlythroughintroducingchargesorco-paymentsfortheuseofmedicalservicesor
2. Indirectlythroughrestric9ngtherangeofservicescoveredbythehealthinsurer.
Co-payments
Theco-paymentcouldeithertaketheformof
Ø apercentagecontribu9on(eachpaIentpaysx%ofthetotalcostofagivencourseoftreatment)
or
Ø afixeddeduc9ble(thepaIentpaysthefirst$xofthecost)
Ø Intheory,co-paymentsshouldbeabletokeepdownthecostsoftreatmentthroughdiscouragingtheso-called‘frivolous’useofhealthservices.
1
Co-payments
Problem Answertothisproblem
• Toraisetheco-payment.• Butifco-paymentsareraisedtoalevelhighenoughtoaffectuse,theindividualsconcernedarelikelytotakeoutfurtherhealthinsurancetocoverthecost,withtheconsequencethat
thechargesordeducIblehaveli]leimpactonuse.
• InFrance,83%ofthepopulaIonhaveprivateinsurancethatpaysallorpartofpaIents’shareofthecosts,thusvirtuallyeliminaInganyimpactondemand.
• DatafromtheU.S.RANDHealthInsuranceExperimentandotherstudieslookingattheeffectsofco-paymentsondrugconsumpIonhavefoundsmallpriceelasIciIes:veryli]leeffectonconsumpIonofincreasesinco-payments.Moroever,theco-paymentsareusuallysettoolowsignificantlytodiscourageuse.
• IntheUSthe22%whospent$2,000ormoreonhealthcareaccountedfor77%ofhealthspending.
2
Fundingrestric9ons
q Restric9ngthenumberandtypeoftreatmentsthatarefundedbytheinsurercanleadtoa‘one-off’reduc9oninhealthcarecosts.
TherestricIonscouldbebasedonanexaminaIonofevidenceconcerning
• effecIveness,
• cost-effecIveness,
and/or
• whetherthetreatmentislargelycosmeIc.
1
Fundingrestric9ons
Restric9onscantaketheformofposi9veornega9velists.
ü Aposi9velistdetailsthetreatmentsthatwillbefundedbytheinsurer;
ü Anega9velistdetailsthosethatwillnot.
² MostEuropeanstateshaveintroducedposiIveornegaIvelistsforpharmaceuIcals.ThesehaveusuallybeenquiteeffecIveincreaIngatleastaoneoffreducIonincosts.
² However,theirimpactwasoSenreducedbyashiSinprescribingpa]ernstowardsreimbursabledrugs.
2
Fundingrestric9ons
Ø TheUKhassetuptheNaIonalInsItuteofClinicalEffecIveness(NICE),withthebriefofassessingthesuitabilityofdrugsandtreatmentsforpublicfundingundertheNaIonalHealthService.
Ø Theprincipalcriterioniscost-effecIveness,witharoughcut-offpointof£30,000perQALY.Thatis,anytreatmentthatNICEassessesascosIngmorethan£30,000foreachextrayearoflife,adjustedforquality,thatitdeliversshouldnotbefunded.
Ø Butitdoesnottakeaccountofaffordability:thatis,theimpactonthe
NHSbudgetortheopportunitycostofadopIngitsrecommendaIons.
Ø Inconsequence,mostofitsacIviIessofarseemtobeapprovingdrugsthatmeetitscostperQALYcriterion,butaresoexpensivetobuythatsomecommentatorsviewitmoreasaninstrumentforcost-enhancementthancost-containment.
3
BudgetSeNng
Thebudgetscantakedifferentforms:
• “Hard”budgets,thatis,withpenalIesforoverspendingandperhapsalsorewardsforunder-spending.
• “So5”(target)budgets,wherearecordiskeptofthecostsofthetransacIonsundertakenbytheagentconcerned,whoismadeawareofanyoverspendingorunderspending,butwherenoimmediatepenalIesareappliedandoverspendingisautomaIcallymet.u SuchbudgetsarelesslikelytobeeffecIveinstrumentsofcostcontainmentthanhardbudgets
Costpressurescanbecontained
§ Ifbudgetsareallocatedtotherelevantagents,and
§ ThoseagentshaveastrongincenIvetospendwithintheirbudget,throughü penalIesforoverspending,ü rewardsforunder-spending,ü orboth
WaysofBudgetSeNng
• ForagentsservingafixedpopulaIontheycanbesetonacapita9onbasis:
• Thatis,theagentreceivesafixedamountperpersoncovered,regardlessoftheactualusemadeofthesystem.
• Historicalspendingorac9vitylevels:
• UnlessthoselevelsareanaccuratereflecIonofneeds,
bothnowandinthefuture,thismaysimplyperpetuatepastinefficienciesinresourceallocaIon.
ProblemsassociatedwithBudgetSeNng
Budgetsdohavetheirproblemsasinstrumentsofcostcontainment:
1. HardbudgetswithpenalIesforoverspendingbutnorewardsforunderspendingencourageagentstospenduptotheirlimit.
2. MosttypesofbudgetselngofferincenIvesforcreamskimmingandforbudgetshiSing;thatis,foragentstoselectthepeoplecoveredbytheirbudgetsoastofavorthosewhowillmaketheleastdemandsonthebudgetandtoshiSother,moreexpensivepaIentsontootherbudgets.
3. Ifbudgetsaresuccessfulincontainingcosts,thentheyarelikelytocreateaneedforraIoningandwaiInglistsmaydevelop,whichcancreatepoliIcalproblems.
SuccessfulexamplesofBudgetSeNng(1)
1. CountrieswithnaIonalhealthsystemssuchastheUnitedKingdom
havealwaysoperatedwithbudgetsatsome(usuallymost)levelsof
thesystem;andtheseareoSencountrieswithhistoricallylowlevels
ofspending.
2. InFrancetheintroducIonofbudgetsforhospitalsin1984playedasignificantroleinreducingtheirshareofoverallhealthexpenditure.
Theydidsobyreducingthevolumeofservices,withtherelaIveprice
oftheseservicesremainingconstant.
SuccessfulexamplesofBudgetSeNng
3. InIrelandasignificantfallintheaveragelengthofstayinhospitals(28%from1980to1993)wasa]ributedtotheefficiencypressuresonhospitalsresulIngfromIghtbudgetaryallocaIons.
4. InGermanytheintroducIonofbudgetsforsectorsandindividualproviders,althoughofvariousformsandefficacy,weregenerallymoresuccessfulincontainingcoststhananyothermeasure.Moreover,sincethosebudgetswereabolishedin1997,Germany
againhasexperiencedupwardcostpressures.
Controls
Insurerscantrytoaffecthealthcarecoststhroughcontrolsonthewayinwhichproviderssupplyhealthcare.
o Feesorpaymentsmadetoproviderscanbecontrolled,and,instatesystems,
thepricesofpharmaceuIcalsandothermedicalsuppliescanberegulated,ascantheprofitsofpharmaceuIcalcompaniesorothermedicalsuppliers.
o TheuIlizaIonofprocedurescanbecontrolledbyinsurers,aswithmuchmanagedcare.
o Also,instatesystemsatleast,the‘inputs’intothesystemcanberegulated,
withgovernmentsimposingrestricIonsoncapitalinvestmentsoronthesupplyofmedicalpersonnel.
Controls–difficul9esassociatedtoit
• BothdoctorsandpaIentsresentcontrolsonprocedureuIlizaIon.
• Thiscanencouragecostlyeffortstoevadethecontrols.
• Theremaybea‘balloon’effect,withthecompressioninonepartofthesystemleadingtoexpansionelsewhere.– Oneelementofexpenditureiscontrolled,butothersarenot.
• E.g.thepricesofpharmaceu5calsarekeptlow,thedemandfordrugsexpands,thequan5typurchasedincreasesandtotalexpenditureonpharmaceu5calsmayincrease.
v Controlseveralelementssimultaneously(priceandquan9ty,wagesandemployment,technologyandvolume)tohaveaninfluence
intherightdirec9on.
Referenceprice–newapproachofcontrol
Ø Inareferencepricesystemagroupofsimilarproductsisgivenaspecificreferencepricethatisfullycoveredbyinsurance,subjecttoco-payment.
Ø TheuseofareferencepriceasareimbursementbenchmarkimpliesthattheinsurerwillonlypaythatparIcularprice.
Ø Anyexcessabovethereferencepricehastobepaidbytheinsuredperson.Ø TheobjecIveistomaketheconsumersmorefiscallyawareandtotriggerprice
compeIIoninthereference-pricedpartofthemarket.
Ø ThefirstschemeofthistypewasintroducedbyNewZealand.InEurope,Germanywasthefirsttointroduceareferencepricesystem.Itisalsousedin
Ø theNetherlandØ Denmark
Ø SwedenØ Italy
Weaknessofreferencepricesystems
v Fromthegovernments’pointofview,theweaknessofreferencepricesystems,astheexperienceoftheNetherlandsandGermanyhasshown,isthattheirintroducIondoesnotnecessarilydecreasethedrugbudget.
v ThereferencepricesystemsImulatesthepharmaceuIcalindustrytomakemajor
effortstopromotedrugsthatarenotcoveredbythescheme.
v Asaresultthemarketshareoftheseexpensiveproductsincreases,andfirmsmayraisethepricesoftheseproductsfurthertorecoverlossescausedbythereferencepricesystem.
Compe99on
• Betweeninsurersitwillkeepdownpremiums,
• whilebetweenprovidersitwillkeepdownhospitalandothermedicalcosts.
q Compe99onbetweeninsurers
q Compe99onbetweenproviders
Theempiricalevidenceconcerningtheimpactofcompe99onismixed.
• IntheUnitedStates,hospitalcompeIIoninthe1980sappearstohaveledtohighercostsand,insomecases,worsehealthoutcomes.
• Inthe1990s,incontrastresearchfoundcompeIIonleadingtoreducIonsincostsandimprovedhealthoutcomes.
21
HEALTHCOSTCONTAINMENTANDEFFICIENCYSTRATEGIES
Strategies
Strategy CostContainmentStrategyandLogic TargetofCostContainment EvidenceofEffectonCosts
GlobalPaymentstoHealthProviders
Afixedprepaymentmadetoagroupofprovidersorhealthcaresystem(asopposedtoahealthcareplan)forallcareforallcondiIonsforapopulaIonofpaIents.
• LackoffinancialincenIvesforproviderstoholddowntotalcarecostsforapopulaIonofpaIents.• Inefficient,uncoordinatedcare.Notenougha]enIontomanagementofchroniccondiIons.• PrevenIonandearlydiagnosisandtreatment.
ResearchindicatesglobalpaymentscanresultinlowercostswithoutaffecIngqualityoraccesswhereprovidersareorganizedandhavethedataandsystemstomanagesuchpayments.
Episode-of-CarePayments
AsinglepaymentforallcaretotreatapaIentwithaspecificillness,condiIonormedialevent,asopposedtofee-for-service.
• LackoffinancialincenIvesforproviderstomanagethetotalcostofcareforanepisodeofillness.• Inefficient,uncoordinatedcare.
ResearchislimitedandshowscostsavingsforsomecondiIons.Paymentmechanismisatanearlystageofdevelopment.
Performance-BasedHealthCareProviderPayments(P4P)
PaymentstoprovidersformeeIngpre-establishedhealthstatus,efficiencyand/orqualitybenchmarksforagroupofpaIents.
• Providersnotfinanciallyrewardedforprovidingefficient,effecIveprevenIveandchroniccare.• Unnecessarycare.
Researchislimitedandindicatessomeimprovementsinqualityofcarebutli]leeffectoncosts.
1
Strategies
Strategy CostContainmentStrategyandLogic TargetofCostContainment EvidenceofEffectonCosts
Collec9ngHealthData:All-PayerClaimsDatabases
AstatewiderepositoryofhealthinsuranceclaimsinformaIonfromallhealthcarepayers,includinghealthinsurers,governmentprogramsandself-insuredemployerplans.
• InabilitytoidenIfyandrewardhigh-quality/low-costproviders.• Lackofdatatoenableconsumerstocompareproviderpricesandcarequality.
Itistooearlytodeterminewhetherall-payerclaimsdatabasescanhelpstatescontrolcosts.
EqualizingHealthProviderRates:All-PayerRateSeNng
PaymentratesthatarethesameforallpaIentsreceivingthesameserviceortreatmentfromthesameprovider.Ratescanbesetbyastateauthorityorbyprovidersthemselves.
• Highhealthcareprices.• LackofpricecompeIIon.• Significantprovidercosts• tonegoIate,trackandprocessclaimsundermanyreimbursementschedules.
Evidenceismixedbutindicatesthat,properlystructured,stateall-payerrateselngcanslowpriceincreasesbutnotnecessarilyoverallcostgrowth.
UseofGenericPrescrip9onDrugsandBrand-NameDiscounts
BuyingmoregenericprescripIondrugsinsteadoftheirbrand-nameequivalentsandpurchasingbrand-namedrugswithdiscountscansignificantlyreduceoverallprescripIondrugexpenditures.
• Stategovernment-fundedpharmaceuIcalpurchasing,includingMedicaid,state-onlyprogramsandsomeprivate-marketpharmaceuIcalpurchasing.
Expandeduseofgenericdrugsisdocumentedtosavestates30percentto80percentoncertainwidelyusedmedicaIons,reducingexpendituresbymillionsofdollarsannually.
2
Strategies
Strategy CostContainmentStrategyandLogic TargetofCostContainment EvidenceofEffectonCosts
Prescrip9onDrugAgreementsandVolumePurchasing
StatesusecombinaIonsofapproachestocontrolthecostsofprescripIondrugsincluding:• Preferreddruglists,• Extramanufacturerprice• rebates,• MulIstatepurchasingand• negoIaIons,andScienIficstudiesoncomparaIveeffecIveness.
• HelpsstategovernmentpublicsectorprogramsoperatemoreefficientlyandcosteffecIvely.• HoldsdownoverallstatepharmaceuIcalspending,butdoesnotdenycover-ageorservicestoindividualpaIents.
StateMedicaidprogramsareusingpreferreddruglists,supplementalrebatesandmulI-statepurchasingarrangementstosavebetween8percentand12percentonoverallMedicaiddrugpurchases.
PoolingPublicEmployeeHealthCare
ProgramsthatpoolorcombinehealthinsurancepurchasersacrossorbeyondtradiIonaljurisdicIonsorassociaIons,includingpublicemployeehealthcoveragepoolsandprivatesectorhealthpurchasingalliances.
• HighadministraIvecostsasaproporIonofsmallandmid-sizedemployerpremiums.• Limitedabilityofsmallandmid-sizedgroupstonegoIatelowerhealthcarepricesorpremiumsorbenefit.
Evidenceindicatesarrangementsmaybenefitsmallgroupsthatjoinlargestatepoolsbuthavenotslowedoverallinsurancepremiumincreases.
PublicHealthandCostSavings
Evidenceindicatespublichealthprogramsimprovehealth,extendlongevityandcanreducehealthcareexpenditures.
PublichealthprogramsprotectandimprovethehealthofcommuniIesbyprevenIngdiseaseandinjury,reducinghealthhazards,preparingfordisasters,andpromoInghealthylifestyles.
ExtensiveresearchdocumentsthehealthbenefitsofmoreAmericansexercising,losingweight,notusingtobacco,drivingsafelyandengaginginotherhealthyhabits.Lessclearistheeffectontotalhealthcarecosts.
3
Strategies
Strategy CostContainmentStrategyandLogic TargetofCostContainment EvidenceofEffectonCosts
PublicHealthandCostSavings
Evidenceindicatespublichealthprogramsimprovehealth,extendlongevityandcanreducehealthcareexpenditures.
PublichealthprogramsprotectandimprovethehealthofcommuniIesbyprevenIngdiseaseandinjury,reducinghealthhazards,preparingfordisasters,andpromoInghealthylifestyles.
ExtensiveresearchdocumentsthehealthbenefitsofmoreAmericansexercising,losingweight,notusingtobacco,drivingsafelyandengaginginotherhealthyhabits.Lessclearistheeffectontotalhealthcarecosts.
HealthCareProviderPa9entSafety
MedicalerrorsaretheeighthleadingcauseofdeathintheUnitedStates,higherthanmotorvehicleaccidents,breastcancerorAIDS.Eachyear,between500,000and1.5millionAmericansadmi]edtohospitalsareharmedbypreventablemedicalerrors.
TheesImatedannualcostofaddiIonalmedicalandshort-termdisabilityexpensesassociatedwithmedicalerrorsis$19.5billion.LongerhospitalstaysandthecostoftreaIngmedicalerror-relatedinjuriesandcomplicaIonsarethetwomajorexpendituresassociatedwithmedicalerrors.
ExamplesofpaIentsafetyiniIaIvesthatimprovepaIentcareandreducecostsexist,butevidenceofoverallsavingsislimited.RecentstrategiesincludeE-prescribing,non-paymentfor“neverevents,”regulaIngmedicalworkcondiIonsanderrorreporIng.
4
GlobalPaymentstoHealthProviders
• HealtheconomistsandothersareincreasinglypromoIngglob-alpaymentsasanimportantstrategytoslowgrowthofhealthcareexpenditures.
Episode-of-CarePayments
Withepisode-of-carepaymentsSavingscanberealizedinthreeways:
1. BynegoIaIngapaymentsothetotalcostwillbelessthanfee-for-service;
2. Byagreeingwithprovidersthatanysavingsthatarisebecausetotalex-pendituresunderepisode-of-carepaymentarelessthantheywouldhavebeenunderfee-for-servicewillbesharedbetweenthepayerandproviders;
3. FromsavingsthatarisebecausenoaddiIonalpaymentswillbemadeforthecostoftreaIngcomplicaIonsofcare,aswouldnormallybethecaseunderfee-for-service.
EpisodeofCare
Performance-BasedHealthCareProviderPayments
v Pay-for-performanceisusedtoencourageproviderstofollowrecommendedguidelinesormeettreatmentgoalsforhigh-costcondiIons(e.g.,heartdisease)orprevenIvecare(e.g.,immunizaIons)
v Pay-for-performanceisdesignedtoaddresshealthcareunderuse(e.g.,inadequateprevenIvecare)andoveruse(e.g.,unnecessarymedicaltests)
q ResearchindicatesthatforsomecondiIons,P4Pcanleadtohigher-quality,lowercostcare,butbyitselfmaynotslowoverallcostgrow.
UseofGenericPrescrip9onDrugsandBrand-NameDiscounts
u ProperpharmaceuIcaluseisdocumentedtosavemoneybyavoidingcostlyhospitalizaIon,emergencyroomuse,movingtoanursinghomeorrepeatvisitstospecialists.
u MillionsofpaIentswithhighbloodpressure,
highcholesterol,chronicpain,arthriIs,sleepdisordersormilddepressiondependononeortwodailypills,forexample.
Ø Buyingmoregenericprescrip9ondrugsinsteadoftheirbrand-nameequivalentsandpurchasingbrand-namedrugswithdiscountscansignificantlyreduceoverallprescrip9ondrugexpenditures.
PoolingPublicEmployeeHealthCare
v Pooledpublicemployeehealthbenefitprogramsrefertoeffortstomergeorcombinestateemployeehealthinsurancewiththatofotherpublicagenciesandprograms.
PublicpurchaserstrytoloweroveralladministraIvecostsandnegoIatelowerpricesfromprovidersandinsurersusingtheirlargenumbersofenrolleesasabargainingtool.Health
costsarecontrolledbyusingsize,volumepurchasesandprofessionalexperIseto:
Ø MinimizeandcombineadministraIveandmarkeIngcosts;
Ø FacilitatenegoIaIonswithhealthinsurersformorefavor-ablepremiumratesandbroaderbenefitpackages;and
Ø RelieveindividualemployersoftheburdenofchoosingplansandnegoIaIngcoverageand
paymentdetails.
References
1. Healthcostcontainmentandefficiencies.Na5onalConferenceofStateLegislatures,20112. HurleyJ&LiJ.(2013).HealthCareFunding,Cost-Containment,andQuality.CentreforHealthEconomics
andPolicyAnalysis(CHEPA),3. StabileM,ThomsonS,AllinS,BoyleS,BusseR,ChevreulK,MarchildonG&MossialosE.(2013).Health
carecostcontainmentstrategiesusedinfourotherhigh-incomecountriesholdlessonsfortheUnitedStates.HealthAffairs,4(32),643-652.
4. MathauerI&Wi]enbecherF.(2012)DRG-basedpaymentsystemsinlow-andmiddle-incomecountries:ImplementaIonexperiencesandchallenges.WHO
5. ZiebarthN.R.(2011).AssessingtheEffecIvenessofHealthCareCostContainmentMeasures:EvidencefromtheMarketforRehabilitaIonCare.Discussionpaper.CornellUniversity
6. HsiaoW.C.(2007).Whyisasystemicviewofhealthfinancingnecessary?HealthAffairs,4(26),950-961.7. ChamchanC&CarrinG.(2006).AMacroeconomicViewofCostContainment:SimulaIonExperimentsfor
Thailand.ThammasatEconomicJournal2(24),73-91.8. CarrinG.(2003).ProviderpaymentsandpaIentchargesaspolicytoolsforcost-containment:How
successfularetheyinhigh-incomecountries?HumanResourcesforHealth1(1),6.9. EuropeanExperienceswithHealthCareCostContainment.AARPEuropeanLeadershipStudy:HealthCare
CostContainment,200610. LeGrandeJ&TitmussR.(2003).MethodsofcostcontainmentsomelessonsfromEurope.IHEAFourth
WorldCongress11. SanterreR.E.(2002).Costofhealthcarethroughouttheworld.Economicsinterac5onswithother
disciplines.1.