Cost Effectiveness of Health

Key Senate committee takes a close look at healthcare waste and prices

Ideas proposed at a recent hearing include a central clearinghouse to route claims from providers to payers, and an all-payer claims database to shed light on how prices react to mergers and acquisitions.

December 7, 2023 5:12 pm

The U.S. Senate is intent on finding ways to improve the value of healthcare, according to takeaways from a recent hearing of the Budget Committee.

Although other committees and subcommittees in both chambers of Congress have held meaningful hearings about healthcare policy and costs this year, the Budget Committee’s attention to the matter is especially pertinent given its role in setting spending levels.

Sen. Sheldon Whitehouse (D-R.I.), chair of the committee, pointed to statistics showing the U.S. spends more on healthcare as a percentage of GDP than peer countries yet has a lower average life expectancy.

“We can do better than to be on par with Estonia, particularly when we’re spending nearly double on healthcare as a percentage of GDP,” Whitehouse said. “Put very simply, we get very little bang for $4 trillion [per year].”

“Our fragmented and endlessly complex healthcare system creates the perfect environment for inefficiencies to fester,” he added. “It is where excess costs live and grow.”

A focus on waste

“Between 1975 and 2010, the number of physicians grew 150% while the number of healthcare administrators increased by 3,200%,” said Sen. Charles Grassley (R-Iowa), ranking member of the Budget Committee. “This administrative growth is driven by regulations that take more compliance time and financial resources away from patient care.”

Administrative friction between providers and payers accounts for an estimated $500 billion in costs per year, Matthew Fiedler, PhD, senior fellow with the Brookings Institution, said during the hearing.

Among potentially worthwhile policy solutions is the elimination of the Merit-based Incentive Payment System (MIPS) for physicians. “Practices are estimated to spend thousands of dollars per physician per year reporting to MIPS, yet, despite these large administrative costs, MIPS is likely not improving patient care,” Fiedler said.

He said other targeted policies could address issues with the No Surprises Act’s arbitration process and risk adjustment in Medicare Advantage.

More broadly, a viable consideration is “a central clearinghouse that would accept claims from providers in a standardized format and route them to payers,” Fiedler said.

“The key challenge would be ensuring that the clearinghouse was well-run, as a poorly run clearinghouse could have few benefits or even do harm,” he added.

Looking to improve efficiency

Prescriptive standards also could be implemented around processes such as prior authorization and quality reporting, Fiedler said.

Standardized quality reporting “might not only reduce administrative costs, but [could] also make the resulting data more useful by increasing sample sizes and facilitating comparisons across payers,” Fiedler said. “It is also questionable whether payers currently produce substantial value by tailoring quality measures to their specific circumstances, which may reduce the potential downsides of standardization.”

As value-based payment becomes more prevalent, Whitehouse said, prior authorization should be tamped down.

“One of the things that I think makes sense in a fee-for-service system is prior authorization just to keep billings from going through the roof,” the senator said. “But once there is skin in the game, the rationale for prior approvals in a value-based system appears to diminish if not entirely evaporate.”

He added, “There’s room as we move toward more value-based care in our healthcare system to make sure that the bureaucracies keep up with that and you’re not running legacy prior authorization systems that require doctors to maintain administrative staff that serve actually no real purpose because you’ve reoriented the incentives.”

A microscope on prices

Other testimony at the hearing examined factors affecting contracted payment rates. Leemore Dafny, PhD, professor at the Harvard Business School and Harvard Kennedy School, said policymakers should consider establishing an all-payer claims database to gain insight on how consolidation affects prices.

“We cannot study the effects of mergers and acquisitions without health insurance claims,” she said. “Right now, we rely on the largesse and interest of commercial insurance companies. That interest has been waning.”

Dafny clarified that congressional authority is required to establish a comprehensive database because in 2016, the Supreme Court ruled that states cannot require self-insured plans to submit claims data. The regulations that apply to those plans are established by the federal Employee Retirement Income Security Act, according to the ruling.

The insight from such a database would be a big improvement over current transparency regulations, Dafny said. Under the status quo, policymakers “could theoretically have the prices for every possible combination of service, insurance plan and provider. But we don’t know how many of those [combinations] are actually being delivered. Without any access to information about the quantity, we’re swimming in the dark.”


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