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Eight Ways That Could Contain Healthcare Costs

Cheryl Clark, for HealthLeaders Media, November 12, 2009

Where, exactly, will the $420 billion to $440 billion in health savings from Medicare suggested in the Senate and House proposals respectively, come from over the next 10 years? And how can the nation keep high U.S. healthcare spending from continuing its upward trajectory?

The short answer, according to Elizabeth A. McGlynn and three research colleagues from RAND Health in Santa Monica, CA, is that those issues are not addressed in the current policy discussion in Congress.

The four researchers wrote a perspective article on the topic in today's New England Journal of Medicine.

Unfortunately, McGlynn said most of the focus for cost containment has been on the public sector. "We think it is useful to consider the cost-control options available to both the public and the private sectors," she and her colleagues wrote.

Here's what has to happen. The nation must hold down health spending to the rate of growth in the gross domestic product, thereby keeping a fixed percentage of national income for healthcare.

To do this, she and her colleagues wrote, "spending on healthcare over the next decade would have to be reduced by 6.2% from the amount the Centers for Medicare and Medicaid Services estimates the country would otherwise spend."

"You can think about it as not getting a wage increase, but you take that money and use it for bonuses for quality performance instead," she says.

The RAND researchers examined 12 policy options for reducing healthcare spending in Massachusetts. In their article, they took eight options "that evidence suggests have the potential to reduce spending and are broadly applicable to the U.S."

They are:

1. Using bundled payments for six chronic conditions and four acute conditions or procedures requiring hospitalization, national healthcare spending could be reduced by 5.4% between 2010 and 2019.

This assumes providers can achieve a reduction of 25% to 50% in costs of complications through more collaborative, follow-up care that prevents errors and avoidable readmissions. The Congressional Budget Office estimates that with bundling in Medicare and Medicaid alone, savings would amount to $19 billion.

"We find that there would be greater opportunities in bundling payments for the treatment of chronic diseases and in applying the model to all payers," the RAND researchers wrote.

2. Apply an all-payer hospital rate, which would be established by a regulatory authority. The authority would set prices for hospital services for all private and public payers. This has the potential of lowering costs by 2%.

3. Accelerate the development of health information technology, which has great potential to dramatically reduce the duplication and inefficiency that encumber the delivery of care. This could reduce costs by 1.5% or it could increase them by .8%.

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