Reducing Red Tape Also Reduces Health-Care Costs for Consumers

September 11, 2017 | Economic Opportunity Institute

In our recent discussions with health policy experts, we’ve found a common thread – any attempt to make health care more affordable should be accompanied with a strategy to mitigate the red-tape expenses and arbitrary pricing that are passed down to consumers.

Administration expenses and arbitrary prescription drug prices are key culprits in the rise of health-care costs in the United States. These are called “upstream health-care costs” – expenses incurred by manufacturers, providers, and insurance carriers as they produce, deliver, and administer health care services. They are directly responsible for much of the well-known rise in health-care spending, which the Congressional Budget Office expects to reach nearly 50% of GDP by 2080.

Having multiple payers (public and private insurance carriers) and little to no coordination between different types of health services requires hefty investments in specialized information technology and lends itself to a high prevalence of redundant tests and preventable injuries due to medical care. This also means that health care providers such as doctor’s offices and hospitals must devote considerable time and resources negotiating payment rates across payers with differing billing procedures. This explains why there are about 3,000% as many administrators today as there were in 1970:

Health Care Administrators

Looking at hospitals alone, administrators are paid obscene salaries, which coupled with administrative costs like moving a claim through a billing system eat up about one in four health care dollars spent in the United States. This portion is already more than other developed countries, and is still increasing.

We also spend much more on higher priced prescription drugs compared with the rest of the world, because we lack the regulations and centralized system that many other countries use to set limits on how much they will reimburse for prescription drugs. Medicare, our largest single payer for drugs, is actually prohibited from negotiating prices, and our government gives tremendous tax breaks and market exclusivity to many drug manufacturers. Some argue that these benefits help subsidize the development of treatment for the rest of the world, but that’s absurd, given that drug companies use their deep pockets to spend just as much if not more on advertising as they do on research & development.

Although health care spending growth has slowed in recent years, thanks in part to the Affordable Care Act (ACA), more must be done to sustain this slowdown. Given the volatile political climate for health reform at the national level, states are better positioned to make progress on cost control while simultaneously improving health-care quality and access.

Washington State has already made strides in this direction by passing legislation to integrate mental health, chemical dependency, and medical services for Medicaid clients and to establish a statewide all-payer care claims database to increase price transparency and better assess cost control and quality improvement efforts.

The idea of expanding Apple Health (Washington’s Medicaid program) by offering it to middle-income folks at no cost or with affordable premiums is taking shape in a working group of which we are a member and will be posited to the Office of Insurance Commissioner and the Health Benefit Exchange for actuarial analysis. This public option could improve health care access while reducing costs by centralizing billing and payment systems and increasing the state’s purchasing power to negotiate prices and rates for services with drug manufacturers and health providers.

Our state should next explore providing hospitals with global budgets instead of reimbursing claims on a per-service basis – a strategy currently being tested in Maryland, Massachusetts, and Vermont. A global budget is a set amount of funding for a fixed timeframe (usually a year) for a specific population that payers give hospitals in advance to limit the amount they can spend. For example, in Maryland, several rural and acute care hospitals were given a fixed amount of revenue each year for all anticipated services. This caused them to reduce unnecessary services and focus on preventative care, community services, and other health improvement activities, resulting in a 48% reduction in potentially preventable complications and a $429 million total Medicare hospital savings from 2013 to 2016.

We are no healthier than the rest of the world despite paying more for health care. In fact, we fall behind other countries in areas like heart disease, drug-related mortality, and adverse birth outcomes. Redesigning the health-care system to negotiate lower prices for drugs, streamline systems, and eliminate red tape would prioritize population health over profits and lower costs for consumers.

This post was written by EOI Policy Intern Christina Leal

Posted in Health Care

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