It’s still about the prices

January 13th, 2021 / By Matt Gallivan

Health economist Uwe Reinhardt famously declared in 2003 that if you want to address higher spending on health care in the U.S., then “it’s the prices, stupid.” Yet almost 20 years later, we’ve made little progress in addressing high prices and shown little political will in taking on the entrenched players reaping the financial benefits of unsustainable spending.

A new study shows that U.S. health care spending continued its steady growth for the fourth consecutive year, encompassing 17.7 percent of national GDP in 2019. In comparison, the second highest country by health care spending of GDP is France at 11.2 percent.

Despite our high levels of spending, our outcomes are not better than other industrialized countries. This level of spending is not only unsustainable, but it is also bad for patients and bad for taxpayers.

The key to lowering prices is looking at where there is the greatest variation in price. If you could pay 40, 50, or as much as 130 percent less for common health services, you would want to know about that right? Using data from Minnesota’s All-Payer Claims Database (MN APCD), we can see that in the commercial marketplace there is a wide variation in the average price for common procedures. The average price for a major bowel procedure at the most expensive hospital in the state was $47,376. The statewide average price was $34,349 and the average price at the least expensive hospital was $23,913 – nearly half the average price at the most expensive hospital.

For appendectomies, the most expensive hospital has an average price that is 37 percent higher than the statewide average and is 132 percent higher than the average at the least expensive hospital. An average total knee replacement at the most expensive hospital is nearly 50 percent more expensive than the statewide average and is more than 130 percent higher than the average at the lowest priced hospital. More must be done to inform consumers in advance about this variation in prices and policymakers must take action to reduce this variation in the case of monopolistic providers. I’ve written about a possible approach to capping prices at monopoly providers as a way to reduce variation in a previous blog post.

The other way to lower prices is by reducing the variation in the number of avoidable poor outcomes and low-value services performed, both of which increase the price to patients. In 2012, the MN APCD looked at potentially preventable admissions, readmissions, and ED visits and found they contributed to $1.9 billion in cost or nearly 5 percent of total health care spending in the state. If the state had looked at potentially preventable services, they would have found spending on low-value care that also meaningfully contributes to higher prices. Employer and government payers need to align financial incentives to insurers and providers to reduce spending on avoidable poor outcomes and low-value care. Several states have already implemented quality programs that utilize rewards and penalties to drive better outcomes at lower costs. These types of programs should be expanded throughout the health care system.

While policymakers continue to focus the debate on insurance access, a noble endeavor, the unwillingness to address spending by lowering prices is putting the country in a dangerous downward spiral that will lead to tough policy decisions in the future. The tough decisions will inevitably include draconian payment cuts and rationing of care to patients. As we turn the page on 2020, will a new year lead us as a society to muster the political will to have difficult, complex discussions about how to lower health care prices? It will take leadership, an openness to different ideas, a willingness by health care stakeholders to go along with measured reforms and a commitment not to turn a discussion of possible solutions into an irresistible political edge. Let’s hope leaders across the political spectrum and within the health care industry are amenable to a new approach in 2021.

Matt Gallivan is the Director of State and Federal Regulatory Affairs for 3M Health Information Systems.