Positive Steps Towards Improving Quality and Reducing Costs

February 18, 2013

Why does health care cost so much more in America than in any other country in the world? One major reason is that our system is really a non-system. That is, in America we have many different payers, financing mechanisms, benefit designs, and structures. Every health plan has its own ways of doing things, and every health purchaser wants a customized benefit plan that meets its own specific goals.

All of this fragmentation leads to higher administrative costs. As cited in a New England Journal of Medicine Perspective, the Institute of Medicine has estimated the U.S. spends $361 billion on administrative costs annually, half of which may be unnecessary. Health care fragmentation in America comes with a hefty price tag.

Another cost of health care fragmentation is harder to quantify but undoubtedly contributes to higher health care spending in the U.S.: The multiplicity of health plans in America makes it difficult to intervene with providers of care to reduce health care spending. When any one payer represents a relatively small percentage of a provider’s practice, it is difficult for that payer to identify clear opportunities for intervention. Indeed, a study in the American Journal of Managed Care comparing variation in Medicare and private sector spending showed some spending patterns to be directionally the same and some to be different.

The Affordable Care Act contains some positive steps designed to make dents in health care fragmentation. The Multipayer Advanced Primary Care Practice demonstration project is one such effort. In that initiative, Medicare, Medicaid, and private sector health plans are working together—with aligned incentives and strategies—to implement a patient centered medical home approach to patient care.

Another positive step in this direction was taken on November 21, 2012, when the Centers for Medicare and Medicaid Services announced the first three participants in the Medicare Data Sharing for Performance Measurement program. The collaboratives included in this program (in Cincinnati, Kansas City and Oregon) will pool information between the private sector and Medicare to enable a fuller picture of provider health care use. The information is intended both to raise consumer awareness and to be available for quality improvement and cost intervention by payers.

In most developed countries in the world, governmental agencies, commissions, or other such groups monitor total health care spending in a region and/or country as a clear part of their mission. This gives these countries a process for developing new policies or procedures when the picture of health care spending becomes concerning.

But in the U.S., there is no such entity, and health care spending issues are generally addressed through strategies initiated by either Medicare, Medicaid, or individual health plans in the private sector. Generally speaking, these initiatives are not coordinated. Indeed, at times, the different payer strategies can send conflicting messages to providers.

At its core, the Affordable Care Act does not address this issue. Indeed, one indicator of the incremental nature of the ACA is how fragmented the American health care system will be even after the ACA is fully in place.

But America is a country in which most policy changes occur incrementally. The steps taken by the ACA, as evidenced by the Multipayer Advanced Primary Care Demonstration Project and the Medicare Data Sharing program, are steps in the right direction. Reducing fragmentation to save health care costs and improve quality of care is a goal we should all be able to support.