Controlling Costs and Reforming Payment Approaches

High health care costs put a strain on older adults. AARP research has shown that one-third (33 percent) of adults 50 and older reported problems paying for health care and nearly half (45 percent) are concerned that are they will be unable to pay for needed healthcare services in the next 12 months.

Reigning in health care costs has been a challenge, considering the scope of the health care sector and the number of entities involved in producing, delivering, and receiving care. Yet, key transformations in the organization and delivery of health care hold great promise not only for improvements in quality and efficiency but also cost containment. Two strategies, in particular, that could improve quality and decrease costs are the efficient use of health information technology (HIT), and payment structures that provide incentives for desired outcomes, and care coordination.

More widespread use of HIT: This technology can help clinicians adhere to evidence-based practice guidelines, eliminate service duplication, make correct diagnoses, and reduce errors (e.g., those caused by illegible handwriting). Sharing electronic information among providers can promote coordination. HIT can also remind clinicians and patients to use preventive services and enhance consumers’ self-management and engagement by affording them access to their personal health information. It would streamline administrative processes through electronic appointments and speed retrieval of test results.

Strategies that align payment with desired outcomes: Payment adjustments resulting from errors or subpar care could encourage higher-quality and more efficient care. Examples include lower payments for preventable hospital readmissions and shared-risk strategies. Another example is refusing payment for services that should never have been provided (“never events”), such as surgery on the wrong body part. Quality incentives like robust risk adjustment ensure providers do not avoid high-cost patients and measures that assess performance. Similarly, removing incentives that lead to site-based payments for outpatient care can align provider payments for the same or similar services regardless of setting.

Improved care coordination: Better care coordination and more patient- and family-centered care would improve quality. It could also potentially save resources by avoiding duplicative tests and repeated hospital visits. And improved coordination among clinicians improves the quality of care patients receive as they transition among clinicians and care settings. This is particularly important for individuals with chronic conditions and long-term services and supports needs. Research is needed to inform methods of payment and service delivery. It would be beneficial to consider how operations research could inform clinical practice.

Facility Fees: Outpatient care is common and critically important for adults ages 50 to 64, most of whom are covered by private health insurance. Outpatient care can be provided in multiple settings, including a provider’s office, an ambulatory surgical center, or a hospital outpatient department (either on the hospital’s campus or off-campus, such as in clinical offices acquired by hospitals). Although many low-complexity outpatient services, such as routine provider visits, x-rays, and cortisone injections, can be provided safely and effectively in multiple settings, providers may receive a higher reimbursement for the same service in certain types of facilities, which may result in patients paying more out of pocket based solely on the care setting.

Added facility fees are a key reason outpatient providers in some settings receive higher reimbursement than others, even for low-complexity services. Facility fees are additional payments to an ambulatory surgical center or on- and off-campus hospital outpatient departments intended to cover general overhead costs, including resources that may or may not be used for the given service such as equipment, nursing and administrative staff, and 24/7 emergency care. Facility fees can increase the total cost of a service, without evidence of improving the quality or outcome of care, and, as a result, they can directly increase out-of-pocket costs for consumers, and indirectly increase premiums. The specific cost to consumers depends on insurance plan design—some plans cover only a portion of a facility fee while others do not cover facility fees at all.

State officials have looked to limit the impact of facility fees on consumers and enacted laws that directly target site-based payments for outpatient care. The range of site-based payment reforms has included banning facility fees for certain services, banning consumer cost-sharing that result from facility fees, limiting the use of facility fees by certain providers, increasing notification and transparency before a provider imposes a facility fee, and requiring public reporting of these fees. State efforts to address site-based payments have many similarities to Medicare’s site-neutral reforms (see also Site-Neutral Payments in Medicare).

Consumer incentives: Some argue these could encourage the use of higher-value services and could lead to cost savings if patients seek care from the most effective and efficient practitioners and providers.