HCI3 Update from the Field: What Will It Really Take to Make Health Care Affordable?

Submitted by francois.debrantes@hci3.org on Friday, October 25, 2013 - 02:01

What will it really take to make health care affordable? Zero increase in per capita costs for the next decade. Most might say it's simply impossible, that the very best we can hope for is that the rate of increase stays tied to the growth in GDP. As such, the 18% of the economy that is sucked into health care would stay there and the unaffordability of health care would also stay at its current level. That's not an acceptable solution for the 50% of Americans that can't afford it today. So how do we get there? First, let's agree that market opacity coupled with concentration is a bad recipe for a free market in health care services to emerge. Second, let's also agree that the prices paid today are, in many instances, twice or more as high as they should be. Not for everything, but for many many services, prescription drugs, durable medical equipment and other supplies. Third, we must acknowledge that benefit designs are still not ideally designed to facilitate real consumer activation and smart shopping. Fourth, we should accept that the answers and solutions will not come from the federal government. So that leaves the rest of us in charge of the needed transformation.

What this means to you – There are plenty of encouraging signs that solutions are having and can continue to have the desired effect of achieving zero inflation. For example, providers in many markets are trading off future fee schedule increases with predictable and fixed bundled payments. So the notion that fee schedules should go up every year is simply false. They're so high now that most savvy providers know full well that fixing the bundles at today's prices will make it very easy for them to yield significant margins, and they are jumping on the opportunity to do just that. Employers who have deployed "reference-pricing" programs have also witnessed first hand how providers will decrease their prices to avoid losing market share. In the same vein, orthopedic implant vendors are willing to reduce the price currently paid by hospitals in order to keep their current market share and even grow it. Many states are changing their existing legislation to publicly release comparative prices of procedures by provider, and they're finding that disclosing such information isn't leading to higher prices for all, but rather a reduction in what the high outliers are getting. These might seem like small achievements, but multiply them several-fold across the country and suddenly, getting to zero inflation doesn't seem as daunting. And that's what it will take to make health care affordable again to the vast majority of Americans.

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