Health affairs
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Bundled payment entails paying a single price for all services delivered as part of an episode of care for a specific condition. It is seen as a promising way to slow the growth of health care spending while maintaining or improving the quality of care. To implement bundled payment, policy makers must set base payment rates for episodes of care and update the rates over time to reflect changes in the costs of delivering care and the components of care. ⋯ But our analysis of 2003 and 2007 US commercial claims data showed spending growth to be highly skewed across episodes: 10 percent of episodes accounted for 82.5 percent of spending growth, and within-episode spending growth ranged from a decline of 75 percent to an increase of 323 percent. Given that spending growth was much faster for some episodes than for others, a situation known as skewness, policy makers should not update episode payments using uniform update rates. Rather, they should explore ways to address variations in spending growth, such as updating episode payments one by one, at least at the outset.
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Medicare's core benefit design reflects private insurance as of 1965, with separate coverage for hospital and physician services (and now prescription drugs) and no protection against catastrophic costs. Modernizing Medicare's benefit design to offer comprehensive benefits, financial protection, and incentives to choose high-value care could improve coverage and lower beneficiary costs. We describe a new option we call Medicare Essential, which would combine Medicare's hospital, physician, and prescription drug coverage into an integrated benefit with an annual limit on out-of-pocket expenses for covered benefits. ⋯ Out-of-pocket savings from lower premiums and health care costs for a Medicare Essential enrollee could be $173 per month, compared to what an enrollee would pay with traditional Medicare, prescription drug and private supplemental coverage. Financed by a budget-neutral premium, we estimate that this new plan choice could reduce total health spending relative to current projections by $180 billion and reduce employer retiree spending by $90 billion during 2014-23. Given its potential, such an alternative should be a part of the debate over the future of Medicare.
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The best opportunity to pursue cost containment in the next five to ten years is through reforming provider payment to gradually diminish the role of fee-for-service reimbursement. Public and private payers have launched many promising payment reform pilots aimed at blending fee-for-service with payment approaches based on broader units of care, such as an episode or patients' total needs over a period of time, a crucial first step. But meaningful cost containment from payment reform will not be achieved until Medicare and Medicaid establish stronger incentives for providers to contract in this way, with discouragement of nonparticipation increasing over time. In addition, the models need to evolve to engage beneficiaries, perhaps through incentives for patients to enroll in an accountable care organization and to seek care within that organization's network of providers.
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Analysis of data from the National Medical Expenditure Survey and the Medical Expenditure Panel Surveys from 1987-2009 reinforces previous observations that increased prevalence of treated disease has become the main driver of increased spending on health care in the United States. Higher treated disease prevalence and higher spending per treated case were associated with 50.8 percent and 39.0 percent, respectively, of the spending increase seen in the population ages eighteen and older, while their joint effect accounts for the remaining 10.2 percent. ⋯ Moreover, the current findings reveal a substantial contribution to the increase in total spending (10.4 percent) from a doubling of the share of the population considered to be obese and from increases in treatment intensity, a component of spending per treated case (11.9 percent), in 1987-2009. Constraining the cost of health care will require policy options focused on reducing the incidence of disease, as well as improved understanding of the extent to which more aggressive treatments for chronic conditions do, or do not, result in lower morbidity and mortality.