HCI3 Update from the Field: Healthcare Utilization Flat, Expenditures Rise

Submitted by francois.debrantes@hci3.org on Friday, April 13, 2012 - 02:06

Newtown, CT – April 13, 2012

Health care utilization continues to be flat, yet total healthcare expenditures continue to rise by close to 4%, keeping healthcare at 18% of GDP. Time to unleash the price slayers – The most recent report from the Altarum Institute shows that while use is flat, healthcare prices are either equal to or greater than prices in the rest of the economy, and have grown by 10% in the past 5 years, while other prices have grown by 6.5%. While many will be quick to blame the third-party payer system for the overall cost increase, we must note that use is essentially flat. So the push to consume services engendered by the basic fee-for-service system has been dampened, even though, for the most part, patients are still using "someone else's money" to pay for the bills. What's happening here? For one, the movement to value-based payment continues to accelerate. CMS announced the participants in its ACO Shared-savings model, and also identified the communities/states in which it will launch its Comprehensive Primary Care Initiative. And while the deadline for the Bundled Payment pilot has been pushed back, that's simply a reflection of the intensity of work by providers across the country, analyzing data and needing more time to prepare their applications. Our recent surveying of some of these potential applicants (those who have downloaded the freeware to analyze their Medicare data), suggests that there is a very strong intent to apply for pilot status. All this activity is having an effect. Physicians and facilities are starting to look at their internal processes for care management, and they're taking action today on issues they spot. Others are looking at their internal costs of producing services or procedures, and they're making adjustments. But at the same time, they're negotiating with private sector payers and extracting as much of a price increase as they can, partially to compensate for the flat rate of utilization.

What this means to you – Delivery system reform is going to be tough, and Fisher and Shortell remind us of that difficulty in a recent blog post. But results from US experiments and overseas ones have shown the savings they promise. These savings, however, will be wiped out without controlling the price inflation that continues to plague us, and employers must fight back using value-based benefit designs. Consumer-patients can and will shift the current imbalance in price negotiating power if they are armed with value-choices tied to their wallets. Many employers have already started these types of designs. Companies such as Safeway are using reference prices for common procedures; others such as Delhaize are tying co-payments or co-insurance to certain facilities based on a calculated episode price. And there's much more that could be done. For example, smart apps that are now mostly focused on making doctor appointments easier, or keeping healthy habits more fun, should start displaying the differences in costs of routine services from one provider to another. We won't succeed until we can slay the price dragon, and only the millions of consumers that have helped slay that dragon in every other industry can help do it in healthcare. It's way past time to unleash the price-slayers. 


Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org