If We Lower Total Healthcare Spending, Who Will the Money Come from?

Image credit: academyhealth.org
Image credit: academyhealth.org

At the recent AcademyHealth Annual Research Meeting in Baltimore, I went to a session on the accomplishments and challenges of community collaboratives. A community collaborative is a pretty cool idea that goes something like this: for a specific community (i.e., city), let’s get all the leaders of the providers and payers in a room (plus a bunch of other stakeholders committed to improving health) and make some decisions collaboratively on how we can fix healthcare in the community. The Robert Wood Johnson Foundation has provided the money to make these things happen in 20 different communities in the U.S. (see Aligning Forces for Quality, and Value-Based Payment Reform).

Sounds like a great idea, right? Well, an interesting challenge has arisen. More and more, these collaboratives are expected to find ways to reduce the total healthcare spending in that community. But so far, they’ve pretty much failed miserably. Why? Well, think about it. Here are all the leaders of payers and providers in that community sitting in a room together saying, “We need to reduce total spending,” but the savings are going to have to come from someone in that room, and none of them are going to say, “Sure, my organization will take one for the team! I’ll have to cut everyone’s pay, but because it’s for a good cause, they’ll love it.”

Does this mean these kinds of collaboratives are utterly useless in terms of lowering total spending in communities? That was the question I (carefully) asked at the end of the session, and one of the panelists gave a really insightful answer. To paraphrase/translate/elaborate on what he said, his answer went something like this:

Yeah, we’re not going to convince anyone in that room to just give up money like that. But what we can do is come up with standardized ways of reporting prices and quality. And when those are standardized across all payers and providers, patients will be better equipped to choose higher-value payers/providers, which, in the U.S., usually means ‘cheaper’ payers/providers. So this standardization will allow total spending to go down by getting more people receiving services from cheaper competitors. Thus, the higher-priced competitors will be the ones who are losing money when total spending goes down, all because we helped standardize quality and price reporting.

I agree. There are still many barriers to getting patients to choose these “higher-value” providers/payers, but this would help solve one of the biggest ones. And with each barrier we overcome, more patients will be enabled to receive higher-value care, which is what everyone wants, right?

6 thoughts on “If We Lower Total Healthcare Spending, Who Will the Money Come from?”

  1. This is a really cool idea. I was wondering if anyone brought up the idea of reducing healthcare consumption from the payer? To meet the providers halfway, have the payers initiated programs to limit the abuse of hospital visits/drugs or initiated public health initiatives to lower the incidence of diabetes, obesity, smoking, stuff that tends to drive up demand for medical services?

    In my limited experience with policy, it seems that the bottom line is always money. If you want to do good in this world, it’s best to have the money flowing in the direction of change you’re implementing. With ObamaCare’s emphasis on treatment outcome being a determinant in hospital reimbursement, wouldn’t providers be happier with a healthier population and hence be more willing to accept pay cuts from a population that is trying to improve its overall health?

    1. Your idea of having payers try to do cost-saving prevention is spot on. But one problem is that evidence shows that very few preventive efforts that payers can do are actually cost saving–most increase spending (and increase health as well, so they’re not a total waste!). However, most people don’t realize that targeted preventive efforts (i.e., preventive services geared toward the top utilizers of healthcare) are usually hugely cost saving, so we can make a lot of progress on that front.

      And, yes, financial incentives. We can’t get rid of them. No healthcare system can get rid of them. So we might as well align them with what patients value so providers/payers will be financially rewarded for doing what patients want. That’s what Obamacare is attempting to do by rewarding providers for getting good outcomes for their patients.

  2. You are missing one obvious way to reduce TME without ruining anyone’s business model. If you can figure out how to deliver the same quality and access (or better) while reducing resource use in the system and sharing the COST savings among stakeholders you can move forward.

    Here is a very simplistic example: An email communication or chat can safely replace office visit in some cases. The cost of providing a 15 min visit might be $25 instead of $100. The current payment for a 15 min office visit might be $125. Currently providers get paid Zero $ for phone and email work. If the payor will agree to pay the Provider $50 everybody wins. Payor saves $75. Provider makes higher margin. The patient gets time savings and savings on travel.

    No complex reform of payment systems required.

    1. This is very true, thank you! Now you’re making me wonder to what extent these kinds of cost-lowering innovations could reduce total spending. And also why they’re not spreading faster.

      Are most doctors in this country so busy day to day that they don’t think very much about trying to change their practice habits to start integrating something like electronic consultations? Or are they deterred by the thought of having to try to convince all their patients’ insurers to reimburse them for new kinds of services? I don’t know.

      1. 1) I think most docs can easily imagine delivering some care remotely. Indeed, there is plenty of innovation and more than a few newco’s that are in business to leverage these ideas – anticipating that either consumers will pay cash and/or that payors will eventually come around to paying for them.

        For some examples check out: Best Doctors Consultations, JustHealthExperts, and HealthTap.

        2) You have hit one of the major impediments to health-care reform in the US – the fact that there are multiple payors. Doctors are not generally a cohesive enough group politically or economically to drive change most of the time. Also, most docs practice in small business units. Even though the industry is huge, this is not like Airlines or Hotels or Investment Services.

        I believe there is a real role for government to create an market environment that aligns the stakeholders around decisions that improve quality, access and safety and reduce costs. The good news is that most things that succeed at the first 3 generally (though not always as a previous poster points out) also reduce TME.

  3. Thanks for the heads up about those companies. Very cool–and heartening!

    You’re right that multiple payers can be an impediment, but they can also be a boon if the market is structured properly. I have not the space in a comment to greatly elaborate, but suffice it to say that we haven’t structured the market properly for multiple payers to be a boon. No data exist to indicate whether a single payer or multiple payers would lead to better value over time because no one has ever properly structured a multiple-payer market. But we know for sure that our current multiple-payer market loses out to single payers any day.

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