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Another Report on Factors in Health Spending

By June 27, 2018Commentary

Leavitt Partners, the Healthcare Financial Management Association and McMannis Consulting released a report attempting to ascertain association between certain factors and health spending.  (Spending Report)   The report is structured as an evaluation of the effect of population-based, value-based payment models on the cost of care, followed by an assessment of the effect of market structure on cost of care, then looking at alternatives to value-based payments, with the last section being recommendations and action steps.  Quantitative data from across the country was used to ascertain actual health spending compared to certain factors.  Nine markets, some very large and some smaller urban areas, were selected for more intense qualitative study, including interviews with various market participants.  The authors concluded that value-based payment methods were not yet having a strong impact on overall health spending, primarily due to inadequate financial incentives for the providers accepting such payments.  In the period 2012 to 2014 there appeared to be no statistically significant correlation between use of these payment methods and lower spending.  Over longer periods of time, these models may yet be shown to be effective.  The other payment alternatives, like episode or bundled payments, reference-based pricing and use of alternative sites of care, like retail and workplace clinics or telehealth, appear to have good promise but also aren’t yet accounting for a significant portion of health spending.

23 factors were examined for association with level of health spending in a geographic area, and collectively these factors explained 82% of variation in that level.  The strongest association was with prevalence of chronic disease, with hospital quality, relative percent of spending on inpatient care, socio-demographic and socio-economic factors and general cost of living also being important factors.  These factors, however, showed a much lower correlation in regard to explaining variation in rate of growth in health spending across markets, accounting for only 27% of that variation.  Weirdly, physical environment factors like daily temperatures, appeared to have the strongest correlation, but that may be a proxy for something else.  Market concentration of both providers and health plans appeared to have the potential for both positive and negative effects on health spending growth.  In terms of market structure, these researchers believe that the data supports the thesis that the type of competition is as important as how much competition, and that the presence of multiple well-organized large networks of providers makes for more competition and lower costs, as does the presence of multiple strong health plans.  Lower-spending in a market also appears associated with organized efforts by the ultimate buyers in the form of employer coalitions, strong state reporting agencies and more transparent pricing for consumers.  Employers, however, expressed a dilemma in being concerned about health spending, but also being very reluctant to limit employee provider choice or otherwise constrain employee choice.

The groups’ recommendations were fairly benign.  Continue to focus on value-based payments but monitor for negative impacts.  Balance the benefits of competition with the benefits of provider integration.  Support more transparent sharing of information on cost and quality.  Yippee!!  Problem solved.


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