In the next decade, high-cost case management, population health, and social determinates of health will remain active and important approaches to rein in the increasing costs of healthcare services. However, there is a risk that trend-bending savings from these efforts could remain elusive. Moreover, while some progress has been made to shift providers to value-based payment, a majority of reimbursement is still tied to the old fee-for-service chassis. Thus, when it comes to next round of Health Care Reform (which is also likely in the next decade), there is a high probability that its predominant cost-saving mechanism will rely on the simplest approach to savings: cut unit prices.
Logically, policy makers will find that setting lower administrative prices is a simple, attractive mechanism to advance the health care policy goals of coverage and affordability. First, while the Affordable Care Act was largely about expanding coverage, the next round of Health Care Reform is going to have to deal with costs. Second, while the government would like to mandate benefits with lower cost-sharing and create larger subsidies to lower premiums, there will be limited appetite to dramatically expand (and pay for) the federal expenditures devoted to health care. Third, the agencies that “score” how much new legislation will cost (OMB and CBO), have not be eager to believe that spending on prevention today will lead to large future cost savings, or that shifting providers to value-based arrangements will lead to major changes to care delivery and utilization. Lastly, unit prices in the United States are widely considered to be a major driver of our high costs.
These premises lead directly to price-setting policies (in areas where private negotiations set rates today). Evidence for the attractiveness of this approach is seen in the major pieces of healthcare legislation being discussed in Congress today: House legislation to reduce the costs of prescription drugs includes the ability for the government to set drug prices, and some bills to create relief from surprise billing include administratively set pricing.
Nonetheless, many providers and some payers will aggressively oppose any efforts to upend the current, private market approach. For example, both Washington State and Colorado have worked to create a “public option” that includes mechanisms to set provider rates in the individual market. However, implementation has not been aggressive given the strong, initial push-back from stakeholders: a soft 160% of Medicare payment rate in Washington and a yet-to-be defined formula in Colorado.
While advocacy may ultimately thwart broader price-setting in future reform efforts, industry stakeholders cannot dismiss the possibility that consumer frustration with costs will ultimately boil over in a way that will result in lower, administratively set prices.
Providers should be asking:
- What would my organization’s revenue look like if rates were set at a lower fixed percent of Medicare for private pay patients?
- Could my organization maintain profitability with lower unit prices through administrative efficiency and cost-cutting, or is a different business model be needed?
- Would lower FFS reimbursement change my organization’s positioning toward alternative payment models and/or the willingness to take capitated risk?
Plans should be asking:
- How dependent is my organization’s market position today on having the “best-rates”? How would that change if competitors could get comparable rates?
- What lessons can be learned from Medicare Advantage where negotiated rates are more uniform and closer to Medicare FFS prices?
- Could fixed prices in one line-of-business result in cost-shifting to other lines of business (e.g. large employer plans)? If so, how would my organization’s product strategy need to evolve?
Finally, all stakeholders should consider how the future value of potential acquisitions or mergers could be affected if market pricing power was diminished.
*ZAHealth has the knowledge and experience to guide you through this changing landscape and ensure optimal positioning for your organization. Contact us today. “We start with the end in mind”