What to Do About Health Care Costs? Views of Health Care Leaders

A month ago, I outlined 10 ideas for controlling health care costs. That column triggered more e-mail responses than anything I've ever written. Most writers found that the ideas resonated with their own experience. Many offered additional thoughts. And, of course, some felt my ideas were impractical.

This month's Commonwealth Fund Health Care Opinion Leader Survey also addresses the issue of health care costs and finds surprising consensus on the most promising ways to control them. This agreement came across all of the sectors that we survey—leaders from academic or research institutions; business, insurance, or other health care industries; health care delivery; and labor/consumer advocacy organizations or government. Even though an expense to employers or government is a source of revenue for those who deliver care, all respondents agreed that to get value for the money we spend we need to change the way we pay for care, streamline administration, and foster collaboration. Clearly, the time is ripe for change.

The three strategies survey respondents rated as among the most effective ways to control costs are:

  • Rewarding more efficient and high-quality care (57% rated it as extremely or very likely to reduce health care costs);
  • Improving disease-management services for patients with high-cost conditions and enhancing primary care case management (56%) and applying evidence-based guidelines to determining when a test or procedures should be done (52%); and
  • Increasing collaboration among private insurers, Medicare, and Medicaid to adopt common payment methods and rates and streamline administrative costs (41%).
Adoption of modern information technology was not seen as a panacea, but it was rated as effective in reducing health care costs by almost half of opinion leaders (46% extremely or very effective). Even though information on the cost of caring for patients with different conditions or acute episodes is essential to implementing these strategies, information by itself was not rated as highly effective in leading to change. Feeding back comparative information on total resource consumption and quality to physicians and hospitals ranked last on the list of possible ways to reduce the prices of care.

Rewarding Performance to Reduce Prices
The degree of support for rewarding efficient and high-quality care was striking—it was the favored strategy among all respondents for curbing prices for health care services.

"Pay for performance" has been gaining attention as an effective strategy for improving the quality of care. The Leapfrog Group has documented almost 100 private sector initiatives tying payment to quality measures. Several Medicare demonstrations are in place and more are being planned to test this strategy on a nationwide basis, and both the Centers for Medicare and Medicaid Services and the Medicare Payment Assessment Commission have endorsed further application of the concept. An Institute of Medicine committee is carrying out a congressionally mandated study on how to do it.

Health care opinion leaders view pay for performance not just as a way to reward quality, but as a strategy to raise efficiency in care delivery. Yet, measuring the efficient provision of care over time or over the course of an acute episode is a much less developed science than measuring the quality of care. It will take a concerted effort to develop and implement such metrics.

Managing Care to Reduce Unnecessary Service Use
Improving disease management services for patients with high-cost conditions and enhancing primary care case management was rated as the most effective way to reduce inappropriate use of health care services. Compared with others, academics and researchers were somewhat skeptical of this strategy, undoubtedly because of the mixed results of studies. Some studies have found that disease management or primary care management can improve quality and lead to savings, but only when efforts are highly targeted and strategically implemented. [1]

Giving Patients Incentives to Reduce Unnecessary Service Use
Requiring patients to pay a substantially higher share of their health costs was the least popular way to reduce use of unnecessary services. Despite the attention given to high-deductible health plans linked to health savings accounts, only one-third of health care leaders from all sectors believe that shifting costs to patients would be an extremely or very effective way to lower the costs of care. This strategy tied for last among those in business, insurance, or another health care industry as a way of reducing inappropriate utilization of services.

Collaborating to Lower Insurance Overhead
The most novel strategy to emerge from a list of ways to reduce insurance overhead is collaboration among private insurers, Medicare, and Medicaid to streamline administrative costs by standardizing insurance products. Contrary to expectation, those delivering health care welcome the aggregation of purchasing power by insurers—if it leads to simplification of payment methods, rates, and rules.

This is a major shift from an industry long apprehensive about negotiated prices or all-payer rate-setting. But perhaps physicians today would prefer uniformity in payment to administrative chaos. To be paid for services, physicians and other health care providers must deal with multiple managed care plans, each with their own rates, methods of payment, and rules on patient cost-sharing and covered services. While standardizing insurance products was viewed by all health care leaders as a highly effective strategy for reducing insurance overhead, it was particularly favored by health care providers.

Walking on the Supply Side
The message—loud and clear—is that the supply side of the health care delivery market shows more promise for long-term success in controlling costs than shifting costs to the demand side, i.e., patients. Promoting collaboration among providers and payers to work together toward a common goal also ranked higher than efforts to instill greater competition among insurers or providers. In addition, supporting best practices and provider learning collaboratives was viewed by 40 percent of leaders in health care delivery and business/insurance/other industry as a highly effective way to control costs.

These findings are encouraging. Beyond ideological divides and self-interest, there is much agreement on practical steps to enhance value in health care delivery, reduce unnecessary services and administrative costs, and apply the business principles of continuous quality improvement, process redesign, and evidence-based practice. Working together to implement these strategies would be a challenge worth taking up.

May 2005

[1] Congressional Budget Office, An Analysis of the Literature on Disease Management Programs, Letter to Honorable Don Nickles, Chairman, Senate Budget Committee, October 2004; Krause D.S. Economic Effectiveness of Disease Management Programs: A Meta-Analysis. Disease Management 8 (April 2005): 114–134; Naylor M.D. et al. Transitional Care of Older Adults Hospitalized with Heart Failure: A Randomized, Controlled Trial. Journal of the American Geriatric Society 52 (5): 675–84; Short A.C., Mays G.P., Mittler J., Disease Management: A Leap of Faith to Lower-Cost, Higher-Quality Health Care, Center for Studying Health System Change, October 2003.

Publication Details

Publication Date:
May 13, 2005
Karen Davis