Cracking the Code on Health Care Costs

State leaders have the ability to reduce cost and improve the quality of health care.

Doctor and patient
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The great "who dunnit" mystery of who caused the rise in health care costs continues. Suspects include physicians, specialty medicine, hospital consolidation, lifestyle choices, chronic diseases, new technology, insurance companies and more.

There is plenty of blame to go around, but as former governors and a U.S. Secretary of the Department of Health and Human Services, we suggest the real question to answer is: "What are we going to do about it?"

Ever-rising health care costs are eroding employers' competitive edge and hurting employees facing insurance premiums and out of pocket costs that have risen faster than wages for decades. Communities also suffer when federal and state governments are forced to reduce infrastructure, education and other public investments to pay for rising health care costs. Over time, these factors conspire to slow economic growth and erode our quality of life.

Lost in much of the debate over health care is the surprising power that resides in the states to reduce cost and improve quality. As co-chairs of the State Health Care Cost Containment Commission, we've been studying the state policy levers available to transform health care and will be recommending a comprehensive set of strategies later this fall. This playbook for state leaders includes:

[See a collection of political cartoons on Obamacare.]

1. Governors as conveners and consensus builders. It's not written in any state constitution, but governors possess impressive political powers to get things done beyond executive orders and laws that can take years to pass. Capable of transcending partisan lines and rallying state pride, governors are well positioned to broker voluntary agreements among those who provide, pay for and receive health care. Together, the key players in health care can review price and performance data to pinpoint where costs can be reduced and care can be improved. Such working group meetings are prime venues to solve the chief problems escalating costs.

2. Drive payment reform. During the next several years, nearly one-third of all Americans will receive their health care coverage directly from state government or indirectly through a state entity. Close to 90 million enrollees will be covered by Medicaid, children's health (SCHIP), state and local government employee health insurance and state health insurance exchanges. This purchasing power is one of the strongest levers in the state tool kit to transform the delivery system from payment structures that reward volume to ones that encourage coordinated care and shared accountability for results. A host of payment models, like payment tied to meeting specific performance measures and accountable care organizations shared savings agreements, can be applied to the unique populations and markets in each state.

3. Encourage market competition and consumer choice. States have the ability to make the cost and quality of health care services more transparent by requiring the public reporting of provider performance and prices on a timely, consistent, statewide basis that facilitates meaningful comparisons. The best providers and insurers will embrace the opportunity to improve performance and compete to keep Americans healthy. This value-based approach should promote shared accountability and also help limit incentives for unnecessary and harmful care. In order to provide integrated patient-centered care, it is often necessary for providers to consolidate. Through anti-trust laws, states have the power to encourage consolidation that improves care and affordability while limiting market concentration that uses undue influence to charge higher prices.

[See a collection of political cartoons on the budget and deficit.]

4. Clean house on byzantine laws and regulations. Layers of outdated health care regulations, laws and mandated benefits are impeding efforts to improve efficiency and reduce costs. These may include "any willing provider" and malpractice laws that increase costs and encourage unnecessary care. Modernized "scope of practice" regulations are effective ways to expand the role for non-physicians such as nurse practitioners (NPs) and physician assistants (PAs). Both NPs and PAs are trained (often at the master's degree level) to diagnose and treat patients and prescribe medications under physician supervision. Experienced NPs and PAs can provide the appropriate level of care at a fraction of the cost.