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Healthcare Price Transparency: Policy Approaches and Estimated Impacts on Spending

May 2, 2014

Healthcare price transparency discussions typically focus on increasing patients' access to information about their out-of-pocket costs, but that focus is too narrow and should include other audiences -- physicians, employers, health plans and policymakers -- each with distinct needs and uses for healthcare price information. Greater price transparency can reduce U.S. healthcare spending.For example, an estimated $100 billion could be saved over the next 10 years if three select interventions were undertaken. However, most of the projected savings come from making price information available to employers and physicians, according to an analysis by researchers at the former Center for Studying Health System Change (HSC). Based on the current availability and modest impact of plan-based transparency tools, requiring all private plans to provide personalized out-of-pocket price data to enrollees would reduce total health spending by an estimated $18 billion over the next decade. While $18 billion is a substantial dollar amount, it is less than a tenth of a percent of the $40 trillionin total projected health spending over the same period. In contrast, using state all-payer claims databases to gather and report hospital-specific prices might reduce spending by an estimated $61 billion over 10 years.The effects of price transparency depend critically on the intended audience, the decision-making context and how prices are presented. And the impact of price transparency can be greatly amplified if target audiences are able and motivated to act on the information. Simply providing prices is insufficient to control spending without other shifts in healthcare financing, including changes in benefit design to make patients more sensitive to price differences among providers and alternative treatments. Other reforms that can amplify the impact of price transparency include shifting from fee-for-service payments that reward providers for volume to payment methods that put providers at risk for spending for episodes of care or defined patient populations. While price transparency alone seems unlikely to transform the healthcare system, it can play a needed role in enabling effective reforms in value-based benefit design and provider payment.

Inpatient Hospital Prices Drive Spending Variation for Episodes of Care for Privately Insured Patients

February 25, 2014

When including all care related to a hospitalization—for example, a knee or hip replacement—the price of the initial inpatient stay explains almost all of the wide variation from hospital to hospital in spending on so-called episodes of care, according to a study by researchers at the former Center for Studying Health System Change (HSC) based on 2011 claims data for 590,000 active and retired nonelderly autoworkers and dependents. For example, average spending for uncomplicated inpatient knee and hip replacements ranged across 36 hospitals from less than $17,500 to $37,000 for an episode of care that included all services during the inpatient stay and all follow-up care within 30 days of discharge. The pattern of spending variation for knee and hip replacements held true for other conditions, with hospital inpatient price differences accounting for the vast majority of spending variation rather than differences in spending on physician and other non-hospital services during and after discharge or spending on readmissions. Moreover, hospitals' case-mix-adjusted relative spending per episode for different service lines—for example, orthopedics and cardiology—tend to be highly correlated with each other. Understanding why spending for episodes of care varies so much among hospitals can help private purchasers accurately target ways to control spending. This study's findings—inpatient prices drive the bulk of episode-spending variation and hospitals with high spending for one service line tend to have high spending for other service lines—indicate that private purchasers can focus on hospitals' overall inpatient price levels rather than pursue bundled payments for episodes of care or service-line-specific purchasing strategies.

Long Island Follows Bumpy New York Road to National Health Reform

September 11, 2013

At first glance, New York and the Long Island metropolitan area appear well positioned for smooth implementation of the federal Patient Protection and Affordable Care Act (ACA) of 2010, according to a new Center for Studying Health System Change (HSC) study of Long Island's commercial and Medicaid insurance markets (see Data Source). Key ACA reforms—expanded Medicaid eligibility, premium rating restrictions in the nongroup, or individual, and small-group markets, minimum medical loss ratios (MLRs)—have long been features of New York's broad public health insurance programs and highly regulated health insurance market. Once the ACA became law, there was little doubt that New York would embrace reform. Yet, partisan gridlock in Albany has made for a rough road to health reform for New York. After many months of wrangling with the state Legislature, Gov. Andrew Cuomo (D) resorted to authorizing the state health insurance exchange by executive order in 2012, giving New York's exchange a later start than in many states. Another threat to successful implementation is the state's commitment to stringent insurance regulations that exceed ACA requirements, most notably in small-group and nongroup community rating. Most respondents expected stricter state regulations to keep New York nongroup premiums very high and lead many healthier state residents to continue staying out of the nongroup risk pool. However, when 2014 premiums were released in July, the approved rates were lower than most had expected. What remains uncertain is how sustainable these rates will be over time—specifically, whether they will remain sufficiently low to attract and retain a sizable pool of younger, healthier enrollees.