February 22, 2018

State Options To Control Health Care Costs And Improve Quality


The recent debate on health care reform has occurred mostly at the national level. The Affordable Care Act, or ACA, was a momentous change for the American health care system. So far, 20 million people have gained health insurance coverage due to the ACA — a historic reduction in the number of uninsured people in the United States.

The ACA also contained several tools designed to control health care costs. For example, it created the Center for Medicare and Medicaid Innovation, or CMMI, which is authorized to test new payment and delivery methods to lower costs and improve quality for individuals who receive benefits from federal health insurance programs.

Partly due to the ACA, health care cost spending growth has slowed in recent years. Before 2014, there were five years of historically low growth, and 2011 was the first time in a decade that spending on health care grew more slowly than the U.S. economy. Health care costs are still projected to grow faster than the overall economy, however, and health care spending already puts tremendous pressure on state and federal budgets and limits spending on other important services. More needs to be done to sustain this slowdown in growth.

The current political environment makes it unlikely that reforms to control system-wide health care costs will be achieved at the federal level in the near future. States, however, are well-positioned to take the lead on implementing cost control and quality improvement reforms. Indeed, many states are already innovating and seeing positive results.

There are several advantages to implementing reforms at the state level. State-level reforms can be tailored to work best for each state, depending on its size and demographics and the structure of its insurance markets. States also have considerable authority over the regulation of health insurance and the provision of health care within their borders.

States control their own insurance markets: They run their Medicaid and CHIP programs and state employee plans, and certain states run the exchanges for individual health insurance. States also control the rate review process, scope-of-practice regulations, physician licensing, antitrust laws, and provider and insurer regulations. Lastly, states and governors have considerable convening power to bring together diverse stakeholders, making reform efforts more politically feasible.

The innovations that some states are implementing to reduce costs while maintaining or improving quality can and should be replicated by other states. Following is a comprehensive summary of options that states can choose from to improve the quality and sustainability of their health care systems. Generally, these options relate to implementing new payment models, increasing accountability and transparency, collecting more data, increasing the use of high-value services and practices, and removing barriers to effective practices. (More detail on each of these options and examples and successful strategies from pioneering states can be found in a recent report from the Center for American Progress.)

All of these reform options would help states slow the growth of health care costs and improve the quality of their health care systems. States should adopt as many of these reforms as possible.

Establish A Cost Growth Goal

A cost growth goal caps the growth in a state’s total health care spending per capita, based on growth in the gross state product per capita. A goal is a public commitment to hold health care costs below a set target, and could be established quickly and without legislation. Massachusetts and Maryland have set such goals, and Rhode Island’s Working Group for Healthcare Innovation recently endorsed the establishment of one.

Publish A Health And Cost Outcomes Scorecard

All states should institute a state scorecard on health and cost outcomes. A scorecard would enable state stakeholders to understand the current spending and outcomes landscape and let the state publicly track progress toward goals — increasing the accountability of providers, payers, and other stakeholders.

Adopt Payment And Delivery System Reform Goals

States should adopt targets for their Medicaid programs and all payers regarding the percent of payments made through alternative payment models and payments tied to quality and value. States should also support payment and delivery system reform through federal waivers that provide upfront investments.

Implement Bundled Payments For All Payers

Public and private payers can implement bundled payment reforms to facilitate care coordination and reduce variation in spending. The Arkansas Health Care Payment Improvement Initiative is the only statewide payment reform that involves all major public and private payers. The initiative aligns bundled payments across Medicare; Medicaid; private insurers; and some self-insured employers, including Wal-Mart. One option for states is to implement bundles without legislation through their contracting with Medicaid managed care plans.

Institute Global Budgets For Hospitals

Global budgets encourage hospitals to focus on the health of their patients, rather than only the provision of health care services. Under a global budgeting system, hospitals in a state receive annual lump-sum payments to cover all spending instead of being reimbursed for each individual service. Maryland’s global budgets for all hospitals have improved outcomes and saved more than $100 million for Medicare in just the first year.

Launch All-Payer Claims Databases

All-payer claims databases, or APCDs, are large-scale databases that systematically collect medical claims, pharmacy claims, dental claims, and eligibility and provider files from private and public payers in a state. APCDs are instrumental in tracking and assessing cost control and quality improvement efforts, and allow consumers to make informed decisions.

Currently, 18 states have enacted laws to create APCDs. The recent Supreme Court case Gobeille v. Liberty Mutual Insurance Company prohibited states from requiring self-funded insurers to report data to APCDs. However, states can still establish statewide APCDs with required reporting except for self-funded insurers, which could be asked to submit data voluntarily.

Expand Evidence-Based Home Visiting Services

Home visiting programs connect parents with nurses who provide coaching on healthy child development and link families with other important services. These programs are proven to be among the most effective government programs ever studied and actually pay for themselves, but they are only able to serve a small portion of the eligible families. States could expand home visiting programs without legislation through their contracting with Medicaid managed care plans or through innovative pay-for-success models.

Improve Price Transparency

The lack of transparency in the U.S. health care system impedes market competition and prevents patients and their providers from making informed health care decisions. All states should expand price transparency efforts and offer consumer-friendly evaluations of the cost and quality of common health care services.

Integrate Behavioral Health And Primary Care

Patients with comorbid behavioral health and medical issues have worse physical health outcomes and produce substantial costs to the health care system. The effective integration of behavioral and medical services can improve health outcomes and lower costs. One notable innovation in this area is Oregon’s Alternative Payment Methodology pilot, which pays community health centers a per-member-per-month fee that allows providers to better integrate behavioral health services into primary care.

Combat Addiction To Prescription Drugs And Heroin

Prescription drugs and heroin addiction have become epidemics in the United States. Key components of effective strategies to combat the death and ruined lives caused by addiction include: improving data collection and analysis; establishing an effective prescription drug monitoring program; developing policies to improve the prescribing of opiates; ensuring access to evidence-based treatment; and creating public awareness and education campaigns.

Improve The Delivery Of Long-Term Care

The need for long-term care is projected to double over the next few decades, imposing significant costs on states. States should rebalance their long-term supports and services towards home and community-based services, offer Health Homes for participants with multiple chronic conditions, and encourage the purchase of private long-term care insurance that meets consumer standards.

Align Scope Of Practice With Community Needs

States should amend restrictive scope of practice laws, which regulate the services a health care professional is legally allowed to provide for a patient in a particular setting, to allow nurse practitioners to practice to the full extent of their training. This would help address provider shortages, increase competition, and improve the productivity of the health care system.

Institute Reference Pricing In The State Employee Plan

California has instituted reference pricing in its state employee plan and has seen large cost savings and no difference in quality. Under reference pricing, insurers set a maximum price for what they will pay for a procedure, and patients are encouraged to shop around to choose a high-value provider.

Expand The Use Of Telehealth

Telehealth is the use of technology to support long-distance health care; it is especially promising for rural areas where fewer physicians practice. Research has found telehealth services to be high quality and cost saving. States can facilitate the expansion of telehealth by modifying licensure and practice rules and increasing reimbursement and coverage of these services.

Decrease Unnecessary Emergency Room Use

States should implement innovations in their Medicaid programs, such as emergency room diversion programs, to lower costs and improve health outcomes without restricting access to care.


This publication was made possible in part by a grant from the Peter G. Peterson Foundation. The statements made and the views expressed are solely those of the authors.

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