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How States Can Begin Cutting the Costs of Health Care

Federal efforts to reduce wasteful spending haven't achieved much. It's an opportunity for states to innovate.

medical costs
The only way to achieve the goal of affordable health care for all Americans is to cut the cost of care. Unfortunately, neither the Democrats' Affordable Care Act nor the GOP's failed American Health Care Act made great strides towards that goal.

But states can address the problem on their own. A good place to start is by working to cut the approximate $1 trillion in annual wasteful health care spending. Recently, our organization, the Texas Medical Center Health Policy Institute in Houston, solicited ideas about ways to reduce health care costs from a panel of top health care experts. A common theme emerged: States can be part of the solution. Here are five ways:

1. Mandate that all health information be provided at a sixth-grade reading level. Many in health care don't speak to consumers about health care in their own language. We recently found that the terms of some short-term health insurance plans are written at the level of a college graduate, for example. Patients who don't understand written materials are at higher risk for seeking emergency care, having more frequent hospital admissions and having poor compliance with treatment recommendations -- all costing money.

Medicaid information is already mandated to be provided at a sixth-grade reading level. States could start by applying that standard to the health insurance they provide their own employees, helping those 4 million workers better understand what they are buying. Eventually, the same requirement could be applied by state insurance commissioners to the insurance plans under their purview that are offered to the private sector.

2. Ensure that expensive services adhere to physicians' own guidelines. Every physician specialty association sets its own national treatment guidelines. Nevertheless, between one-third and three-quarters of physicians, depending upon specialty, do not use them.

States should identify the 20 most expensive Medicaid services and assemble a panel of physicians from each specialty practicing in their state to review the guidelines. They could compile a list of guidelines and share this with managed care organizations to use as they see fit. Eventually, they could consider not paying for services that don't conform to guidelines.

3. Encourage paying doctors a salary instead of on a fee-for-service basis. More than 70 percent of physicians in a recent survey acknowledged they perform more procedures when they profit from them. The fee-for-service model incentivizes overtreatment, amounting to $200 billion in wasteful spending annually.

Converting physicians to salaries plus a quality bonus, without reducing their total compensation, could create savings of between 8 and 33 percent due to a decrease in unnecessary tests and procedures. Medicaid agencies could create a bonus for physician groups that compensate a large percentage of their doctors primarily by salary. The good news is that 69 percent of doctors say they'd support this shift.

4. Improve care while lowering costs by using paraprofessionals. Paraprofessionals such as community health workers and "Grand-Aides" -- trained "nurse extenders" who follow up with patients after discharge -- can help keep people healthier and out of the hospital. (One of the authors of this column, Arthur Garson, is the founder of the Grand-Aides program). Newly published data show that Grand-Aides reduced the 30-day readmission rate for patients from 15.8 percent down to 2.8 percent. These types of programs can be particularly helpful with "dual-eligible" patients, those who qualify for both Medicare and Medicaid.

To implement such a program, or others that prove savings, a managed care organization would need the state to designate such a program as an allowable medical expense.

5. Introduce cost-effectiveness into Medicaid preferred-drug lists. Too many new drugs have exorbitant prices. Around the world, nations use the cost-effectiveness of drugs as a measure of value. If drugs aren't cost-effective, they aren't approved.

However, the Affordable Care Act prohibits the use of cost-effectiveness in decision-making. In other words, Medicaid can't refuse to cover a medication simply because it costs too much relative to the benefit it provides. A state, however, could compare the cost-effectiveness of drugs and use that data as part of its decision-making.

What's next? This country has a long history of states developing innovative policy solutions that inspire Washington to act. More than a decade ago, Congress considered the Health Partnership Act, which would have provided grants to states trying new strategies.

That legislation died when national health care reform was proposed, but the idea was a good one and should be back on the table. At the very least, federal lawmakers should consider reviving the measure as one way of helping states fulfill their role as laboratories of innovation. Now, perhaps more than ever, it's incumbent upon states to embrace their role in tackling health care costs, given the lack of movement in Washington on the issue. After all, there's a trillion dollars at stake -- and that number is growing each year.

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