Transparency May Not Help Control Costs, But Multi-Payer Alignment Might

The pressure on both federal and state governments to control health care spending may not be sufficient to counter the upward pressures from powerful providers, consumer demand, and increasing use of technologies, says Alan R. Weil, Executive Director of the National Academy for State Health Policy. In a keynote address March 26, 2014, to the American Health Lawyers Association annual conference on Medicare and Medicaid Reimbursement Issues, Weil said that the alignment of the payment policies of private insurers with federal and state health care programs would be crucial to controlling costs, but the alignment itself would be difficult to achieve.

The conventional wisdom is that Medicare and Medicaid pay less than providers’ costs to furnish services, while private payers pay a significant percentage above those costs, in effect, subsidizing the public programs. However, the relationship between the stated costs and payment is actually not clear because there is no agreed-upon definition of providers’ actual costs.

Factors Tending to Increase Prices

The limited revenue available to government payers exerts downward pressure on expenditures, but other forces operate to push payments up. In order to meet consumer demand for open access to providers, private payers have not succeeded in limiting payment through the use of networks. There is wide variation in payments to providers both geographically and within any given local area. Weil noted that transparency in payments sometimes serves to drive prices up because the lower-paid providers want increases to match what others are paid. To the extent that providers have merged or consolidated, their increased market power also may help to push payments higher.

Obstacles to Alignment

The trend away from regulation has likely contributed to the decline of multi-payer cooperation. In 1980, 30 states imposed some regulation on payment, but today, only two do. Private payers may not want to give up any competitive be advantage they have over their competitors; therefore, they often treat the details of their payment arrangements with providers as proprietary. Direct agreement among payers on the rates to be paid for services also raises antitrust concerns, although agreement on quality measures should not. It also would be very difficult for Medicare to align nationally with the Medicaid programs in every state because of the differences among state Medicaid programs.

The development of a consistent alignment among state, federal and private payers would take many years. Still, agreement on the use of pay-for-performance or value-based purchasing criteria as a factor in reimbursement could be an important first step.