Transparency and Containing Health Care Costs

As we have written before, the recent downward turn in the growth of health care costs is an encouraging development, but one that may not last in the long term. Historically, such slowdowns in health expenditures tend to last only temporarily, and an aging population will once again lead to escalating health care spending in the next decade even if per-capita cost growth remains relatively subdued.

Earlier this week, Dr. Kavita Patel, a Managing Director at the Brookings Institution's Engelberg Center for Health Care Reform, testified before the Senate Budget Committee about the importance of reining health care costs. Also testifying at the hearing were Joseph Antos of AEI, who argued in favor of a premium support program and market competition, and Len Nichols of George Mason University, who made the case for payment reforms and realigning incentives in the system.

Dr. Patel's testimony focuses specifically on the Affordable Care Act's impact on health spending in the context of payment and delivery system reforms. She also identifies opportunities for additional savings in ambulatory care, inpatient services, post-acute care, and simplification of pharmaceutical delivery, supplies, and administration.

In addition, Dr. Patel argues in favor of increasing transparency in the Medicare program so beneficiaries can be more informed consumers. These type of reforms -- which could theoretically work with cost-sharing provisions -- would encourage quality and value of care by simplifying the Medicare program and giving seniors more information in making their health care decisions. Dr. Patel argues:

Most patients and their physicians have little to no understanding of the true cost of care or pricing, often resulting in poorly informed decision-making. It is clear that as consumers face increased out of pocket spending and continue to bear more financial responsibility, there is a need for a systematic approach to increase transparency and then deal with the consequences of such transparency.

She notes that it is unclear how best to implement greater transparency in the Medicare system, but policymakers have suggested several approaches, namely "anti-trust litigation to reduce the market power of certain insurance companies and providers to drive up prices and obscure them from consumers, incentivizing price transparency through legislation and regulatory action, and market solutions such as making transparent and releasing data on quality and prices of providers to employers would enable them to demand lower-cost and higher quality health plans, hospitals and providers."

Dr. Patel argues that transparency and efficiency reforms can and must be considered alongside other Medicare provisions as a part of broader structural Medicare reform. This sentiment echoes a framework released by Brookings in an April report highlighting approaches for bending the health care cost curve that have garnered bipartisan support. Many of the reforms that Dr. Patel describes -- including increasing transparency in conjunction with cost-sharing reform -- could help to ensure that some of the slowdown in the growth of health expenditures continues over the long term.