Patient-Centered Guiding Principles for Reforming Health Care to Address Rising Health Care Spending

Supporting Detail

As stated in the Triple Aim framework developed by the Institute for Healthcare Improvement (IHI), “in order to optimize the performance of the U.S. health care system, a policy needs to be designed to pursue the following aims simultaneously: (1) improving the patient experience of care (including quality and satisfaction), (2) improving the health of populations and (3) reducing per-capita costs of health care” (Bisognano et al., 2012). Overall reform efforts should focus on all three prongs of the Triple Aim framework, while the goals of individual policies may focus on a subset. However, reduced per-capita costs should not be achieved at the expense of the patient experience or population health.

Furthermore, the goal of reducing per-capita costs of health care should not prevent the adoption of high-value care that increases costs. Furthermore, the IHI stated that “the Triple Aim will not be achieved until it is achieved for all” (Wyatt et al., 2016). Thus, policymakers should design health care spending policies that achieve all three aims for all people. Specifically, these policies should improve quality of care and health outcomes for those groups of individuals historically linked to discrimination or exclusion such as racial and ethnic minorities, religious minorities, populations based on gender and sexual orientation, people with mental and physical disabilities, and the socioeconomically disadvantaged.

How to Use This Guiding Principle

The goal of any policy reform framework and every specific policy to moderate health care spending should be consistent with that of the Triple Aim framework. Reviewers should assess the following three potential policy impacts: (1) patient experience of care, (2) population health and (3) per-capita costs. Policies should not advance cost reductions at the expense of patient experience of care and population health. In addition, per guiding principle 2.7, health spending policies should not prevent the adoption of high-value patient care that increases costs.

Illustrative Example

The Delivery System Reform Incentive Payment (DSRIP) program in Texas is a Medicaid waiver program that began in 2011. Underpinning the DSRIP are the Triple Aim framework goals of improving population health, enhancing the patient care experience and reducing costs within the Medicaid and low-income uninsured (MLIU) population in Texas. Under the first waiver, DSRIP 1.0 (2011-2017), the participating providers, led by a regional coordinator, carried out a regional health care needs assessment focused on unmet needs within the MLIU population. Based on the review, providers selected from the state menu of infrastructure and service redesign projects that addressed one or more regional needs. Providers were paid to design and implement innovative projects and achieve health outcome improvements in patients served by these projects.

The second waiver, DSRIP 2.0, which began in October 2017, maintained the regional health care partnerships structure. However, it required providers to define their populations at the broader system level (e.g., all patients served by the major components of a provider’s health system vs. patients served by specific projects).

Revere and colleagues conducted an evaluation of DSRIP 1.0 and 2.0 by mapping the significant features of the program and the Triple Aim framework objectives.

The Revere study noted that there was a substantial increase, at a general level, in the effectiveness of care and patient-centered care metrics under DSRIP 1.0. Although there were continued increases seen in performance metrics under DSRIP 2.0, the change to a broader system-level focus under DSRIP 2.0 and the resultant expansion of the MLIU study population resulted in a flattening in the trajectory of improvement when compared to the metrics seen in DSRIP 1.0.

Contrarily, some metrics worsened over the one-year DSRIP 2.0 measurement period. For example, the latent tuberculosis infection treatment rate declined by 27%, and controlling for high blood pressure decreased by 7%. Furthermore, when using utilization as a proxy for costs, it was unclear whether DSRIP reduced costs. Between the baseline year and performance year three in DSRIP 1.0, the authors observed a reduction in 30-day hospital re-admissions for most causes and emergency department (ED) visits for behavioral health and substance abuse. However, the other utilization measures, including mental health admissions and re-admissions and ED visits for diabetes, showed increased utilization. In DSRIP 2.0, only two measures (risk-adjusted congestive heart failure 30-day re-admissions and risk-adjusted all-cause re-admissions) showed improved utilization. The remaining utilization metrics (i.e., ED visits for behavioral health and substance abuse, behavioral health and/or substance abuse 30-day re-admissions, mental health admissions, and ED visits for diabetes) showed an increase rather than an expected decrease in utilization (Revere et al., 2020).

The following (Assessment 9) evaluates whether the Texas DSRIP program meets the intention of the Triple Aim framework.

Assessment 9. Evaluation of the Texas DSRIP Program (Revere et al., 2020)

Supporting Detail

Policymakers should design the health care system to maximize the value per dollar spent on the patient. The Institute of Medicine defines patient-centered care as “providing care that is respectful of, and responsive to, individual patient preferences, needs and values, and ensuring that patient values guide all clinical decisions” (Institute of Medicine, 2011). Patient-centered care involves all aspects of the health care system, from assessing value and determining coverage policies to care delivery. Health care reform should encourage the adoption of patient-centered care.

How to Use This Guiding Principle

Every policy reform initiative to moderate health care spending should be rooted in patient-centered value. For instance, patient-centered reforms should involve listening to patients and their family members and/or caregivers to define successful outcomes from the perspective of patients. Reviewers should evaluate policies to determine the extent that they move the system closer to or further away from a patient-centered health care system. For example, reviewers should examine the potential effects of implementing the policy on patients’ and caregivers’ health, out-of-pocket medical and nonmedical spending, and the patients’ and caregivers’ abilities to work or study.

Illustrative Example

The American College of Physicians defines Patient-Centered Medical Home (PCMH) as “a care delivery model where treatment is coordinated through their primary care physician to ensure they receive the necessary care when and where they need it, in a manner they can understand” (American College of Physicians, 2021). Centralized coordination that facilitates partnerships among patients, physicians and patients’ families may help with early diagnosis and treatment of comorbidities and potentially reduce the costs of uncoordinated care, such as duplicative procedures.

Crits-Christoph and colleagues (2018) examined how Pennsylvania’s Chronic Care Initiative (CCI), a statewide PCMH initiative implemented from 2008 to 2011, affected health care utilization and costs among HIV-positive Medicaid patients with comorbidities. The study compared health care utilization associated with patients treated in CCI practices and elsewhere using a claims database.

Crits-Cristoph and colleagues found that the CCI group experienced a statistically significant reduction in inpatient services, whereas the non-CCI group had increased inpatient claims. On the other hand, the study found an increase in outpatient care and pharmacy utilization for CCI patients compared with non-CCI patients (increase of 11.7% and 8.0% in the average number of claims per month, respectively).

The following (Assessment 10) evaluates whether the CCI program in Pennsylvania is grounded in patient-centered care.

Assessment 10. Evaluation of the CCI Program in Pennsylvania (Crits-Christoph et al., 2018)

Supporting Detail

The U.S. health care system treats a diverse set of patients, differing in multiple ways — from their underlying biology and associated treatment response (heterogeneity of treatment effect) to their preferences and priorities (The National Health Council, 2019). Heterogeneity of treatment effect (e.g., efficacy and adverse events) can occur in members of the same family and across ethnic or socioeconomic groups. Similarly, differences in preferences and priorities (e.g., for survival or quality of life) may be observed among patients and providers and between provider and patient. Health care reform initiatives should respect and support the disparate needs of a diverse population.

How to Use This Guiding Principle

Reviewers should evaluate each policy to determine how it supports the needs of a diverse U.S. population. Not every individual policy can address the diverse needs of the U.S. population. However, health care spending policy should include targeted approaches to address the unique needs of specific populations. If reform does not support the needs of a particular population, a strategy to mitigate the consequence to this population should be explored. At a minimum, policies should not reduce the capacity to support these varied needs.

Illustrative Example

Note: This example is not a commentary on the expansion of Medicare; instead, it uses the following expansion analysis of Medicare’s ability to meet the needs of a diverse population as an example of how to evaluate a policy.

Medicare is the largest purchaser of health care in the United States, serving millions of Americans with disabilities and those over age 65. Landers and colleagues analyzed the role of Medicare in increasing access to care for racial and ethnic minorities and decreasing inequality in health coverage over a period from when the program began in 1966 (Landers et al., 2020).

In this analysis, Landers and colleagues (2020) noted that research has shown disparities in access to quality care for insured minorities within the Medicare program remain today. For instance, among Medicare beneficiaries, Landers found that those older and from racial and ethnic minority backgrounds report worse health indicators and receive a lower quality of care than white Medicare beneficiaries. Within Medicare Advantage plans, a recent study found that racial and ethnic minority beneficiaries’ ratings of their experiences with the health care system and health care access were worse than or equal to the ratings reported by white beneficiaries.

Further, Medicare contains noncapped, OOP deductibles and coinsurance, as well as coverage gaps for dental, vision and long-term services and supports. People of color are less likely to have supplemental coverage for these gaps. Given such disparity among the Medicare population, the authors stressed that any novel program should address other causes of health disparities such as housing availability, neighborhood conditions, food insecurity and educational opportunities. In addition, the novel program should consider other measures of inequality such as diversity and inclusion training for health care professionals and investments that could diversify the supply of clinicians (Landers et al., 2020).

The authors noted that the Affordable Care Act contains requirements for collecting health care data for minority populations in federally supported health care programs, which the authors believed was key to reducing disparities.

The following (Assessment 11) evaluates how Medicare program expansion meets the needs of a diverse U.S. population.

Assessment 11. Evaluation of the U.S. Medicare Program and Expansion Proposal (Landers et al., 2020)

Supporting Detail

Health care reform approaches developed without consideration of their impact on short- and long-term outcomes or benefits for different patients can lead to worse patient outcomes. Understanding potential changes in both short- and long-term patient outcomes requires evaluating how reform might affect care over the natural trajectory of different clinical conditions (National Quality Forum, 2009). Such considerations will better assess a patient’s remaining lifetime health status and health care costs. As defined by the National Quality Forum (2009), this natural trajectory runs from prevention in the at-risk population to evaluation, initial management and follow-up care. Health care reform should create cost savings by modifying patient care in a manner that preserves or improves both short- and long-term outcomes.

How to Use This Guiding Principle

Aligned with the goal of the Triple Aim framework discussed in guiding principle 2.1, policy reform should sustain or improve the patient experience and the population outcomes in an extended timeline. At a minimum, no patient-centered health care reform framework or specific health policy should negatively impact outcomes to reduce spending. In 2009, the National Quality Forum presented the patient-centered framework for evaluating the efficiency of the U.S. health care system. This framework provides a helpful construct for assessing the impact of policy on outcomes. Leveraging this framework, reviewers should evaluate policy impact on outcomes throughout the entire life cycle of health care. This evaluation includes: 1) preventing events in the at-risk population; 2) providing evaluation and initial management during the acute phase; 3) providing follow-up care during the recovery and stabilization phase, including the strategy to manage disability; and 4) preventing the next episode. This framework aims to incorporate all care required to restore patients’ long-term quality of life and functional status. The framework demonstrates the relationships between preventive care, treatment for the acute event and long-term follow-up care (National Quality Forum, 2009).

Illustrative Example

In 2011, the Centers for Medicare and Medicaid Services (CMS) introduced Bundled Payments for Care Improvement (BPCI) to reduce the total cost of an episode of care while maintaining or improving the quality of care. The BPCI sought to minimize costs by bundling together payments based on historical Medicare billing for hospital and post-hospital care. Participants chose from three payment models, 48 clinical episodes, three episode lengths and three risk tracks.

Bundled payments may lead to unintended consequences, like underutilization for the sickest patients, later exacerbating the condition. So, while a bundled payment model may achieve positive short-term results in terms of cost, it may also produce adverse outcomes in the long term (e.g., increase in re-admissions) (LaPointe, 2020; Hardin et al., 2017).

CMS published the final BPCI evaluation for the entire five-year performance period of the initiative, from October 2013 through September 2018. The assessment includes Medicare claims-based impact estimates for key outcomes for Models 2, 3 and 4 and estimated savings to the Medicare program over the entire five years of the initiative (The Lewin Group, 2021).

“Consistent with previous reports, BPCI participants responded to the initiative’s incentives by reducing Medicare FFS payments. We continue to see this result from general patterns of reduced utilization and intensity of Post-Acute Care (PAC) use, with reductions in institutional care and decreases in the number of Skilled Nursing Facility (SNF) days among patients who receive SNF care. This decline did not translate into overall savings to Medicare after taking into account reconciliation payments made to participants. There are few indications in claims-based results that BPCI affected quality of care. However, three out of the 11 Model 3 SNF clinical episodes analyzed had an increase in readmissions, E.D. use, or mortality, potentially indicating a decrease in quality. However, these three clinical episodes suffer from small sample sizes, both overall and per SNF, making it difficult to ascertain whether these results are a signal or simply noise.

This final report shows differences in findings between surgical and medical clinical episodes. Under Model 2 hospitals, relative declines in total payments and payments for SNF, inpatient rehabilitation facility (IRF), and readmissions were similar for surgical and medical clinical episodes. Under Model 2 Physician Group Practices (PGP)s, relative declines in total payments, as well as SNF, IRF and HHA payments, were larger for surgical clinical episodes than medical clinical episodes. With respect to the effect of BPCI on quality of care as measured by readmissions, E.D. use, and mortality, there were no changes for Model 2 hospital-initiated episodes, and while there were a few indications of change for Model 2 PGP-initiated episodes, the direction was not consistent.

Results in the Year 5 Evaluation & Monitoring Annual Report also indicated that changes in functional status did not differ between beneficiaries in BPCI episodes and comparison beneficiaries, based on survey results, although fewer BPCI beneficiary respondents reported the highest level of satisfaction with their care. Quality of care was also maintained among vulnerable populations, including populations dually eligible for Medicare and Medicaid, with dementia, or with recent institutional PAC use (The Lewin Group, 2021).”

The following (Assessment 12) evaluates how BPCI impacted short- and long-term patient outcomes.

Assessment 12. Evaluation of the Bundled Payments for Care Improvement (The Lewin Group, 2021)

Supporting Detail

Increasing total health care spending will require additional funding via higher premiums, higher patient out-of-pocket (OOP) costs, increased tax burden, and/or government funding diverted from other public services such as education and infrastructure. In some instances, these spending increases may be justified by the value of the care provided or be offset by increases in other areas of the economy; in other instances, this is not true. When the value of care is not high, and other gains do not offset spending increases, rising premiums and high patient OOP costs (in the form of high-deductible health plans, coinsurance and high max OOP caps) often result in consumers and patients losing insurance or being underinsured. Increasing taxes or shifting funding from other public services has consequences for the broader public and the economy. These effects are often not uniformly experienced within and outside the health system; instead, the consequences of these resultant distributional effects are often disproportionately worse for patients with lower socioeconomic status, thus creating significant disparities (Baicker, 2019).

How to Use This Guiding Principle

Individual policies to improve health outcomes may result in unintended negative consequences, such as increased disparities and reduced public services, due to health care spending changes. Therefore, reviewers should evaluate the distributional impacts, such as disparities and broader economic burden, resulting from proposed health care spending changes. This examination should identify potential sources of increased disparities, including higher premiums, higher patient OOP costs, increased tax burden, or government funding diverted from other public services such as education and infrastructure.

Illustrative Example

California’s laws and regulations create an effective budget cap for public expenditures. To assess the consequences of this public expenditure budget cap on individuals relying on public spending, Tran et al. (2017) used 25 years of General Fund expenditure data from California to estimate the effects of rapidly increasing health care spending on nonmedical social spending for tobacco control activities, restoring and expanding the number of high school counselors, and increasing the number of state preschool slots.

The authors found that while health care spending for Medicaid and other medical benefits increased over the 25 years from 14.1% to 21.3% of the General Fund expenditure, spending on public health and social programs fell from 34.8% in fiscal year 1990 to 21.4% in fiscal year 2014. The health care spending increase was associated with a 5.3-year gain in life expectancy between 1985 and 2010 in California, compared with an average improvement in the U.S. of 3.9 years during the same period. However, the authors suggested that reallocating ineffective medical care spending (assumed to be 21% of medical care spending) to cost-effective nonmedical social spending could have either prevented 10,500 premature deaths annually or helped an additional 418,000 high school students to graduate. The authors recognized that reallocation from inefficient care to nonmedical social spending interventions would not be simple to implement. Consequently, any estimates of the benefits from nonmedical social spending were subject to uncertainty.

The following (Assessment 13) evaluates the distributional consequences resulting from the interaction between California’s effective budget cap on public spending and increasing health care spending.

Assessment 13. Evaluation of California Budget Cap for Public Expenditures and Rising Health Spending (Tran et al., 2017)

Supporting Detail

An efficient health care system can appropriately assess and reduce opportunity costs, which are defined as the loss in patient health outcomes attributable to spending on wasteful, inefficient and low-value care that reduces the funds available for high-value care. Analysis has shown that opportunity costs exist throughout the entire U.S. health care system (VBID Health, 2017). Therefore, improving the value of health care spending requires understanding significant sources of inefficiency across settings of care (outpatient and inpatient), services (procedures, drugs, diagnostics, devices, screenings), and stakeholder types (patients, payers, providers, manufacturers) (Cylus et al., 2016).

How to Use This Guiding Principle

Overall, health care reform approaches should focus on identifying and eliminating significant sources of inefficient care across the entire health system. However, no single policy will target all important sources of inefficient care; instead, individual policies should improve or, at a minimum, maintain the current efficiency level. Therefore, reviewers should evaluate individual policies to determine whether they improve or, at a minimum, maintain the current efficiency level.

Illustrative Example

The Choosing Wisely campaign is a nationwide initiative by the American Board of Internal Medicine Foundation to promote conversations between physicians and patients to make intelligent, effective health care choices that lead to high-quality care. The Washington State Alliance conducted a campaign in support of this initiative in Washington state. The campaign was developed using a Milliman MedInsight Health Waste Calculator analysis of the All-Payer Database in Washington state from January 1, 2014, to December 31, 2017. The analysis examined 47 of 48 of the calculator measures of tests, procedures and treatments known to be overused in both the commercially insured and Medicaid populations. On average, 846,973 individuals received services each year that were considered to be low value. The net result was $703 million spent on low-value care over the four years. Almost all of the wasted expenditure was driven by 11 of 47 low-value care practices identified.

Results of the analysis were made available to key stakeholders throughout the state as part of its Choosing Wisely campaign. In addition, the Washington Health Initiative proposed several actions to reduce this wasteful spending on both the demand side and the supply side of care. For example, officials recommended that clinicians “incorporate the reduction of overuse into local practice culture.” The result was a 10% decrease in low-value care in the commercially insured population and a 24% decrease in the Medicaid population (Washington Health Initiative, 2019).

The following (Assessment 14) summarizes how the study reviewed sources of inefficient health care spending.

Assessment 14. Evaluation of Washington State’s Choosing Wisely Campaign (Washington Health Initiative, 2019)

Supporting Detail

The value delivered by the health care system is not uniform across interventions, diseases or populations. This variation exists for many reasons, such as different outcomes associated with different interventions for different populations; different condition characteristics by population, like disease severity; the level of disease-specific treatment innovation; the level of access to treatments; and other factors. Patient care is considered low value when it is wasteful, inefficient or the benefits don’t justify the costs or risks. Conversely, high-value care is when the benefits are high relative to the costs and risks. Health care reforms should recognize this inherent variation and seek to encourage the use of high-value treatments and discourage the use of low-value treatments (VBID Health, 2017).

How to Use This Guiding Principle

The health care system should be designed to spend dollars to maximize value for the patient. Therefore, health care reform initiatives should incorporate incentives, such as coverage policies and patient out-of-pocket costs, that encourage high-value care and discourage low-value care (Institute of Medicine, 2010). Reviewers should evaluate each new policy to determine whether it encourages high-value care or discourages low-value care. At a minimum, new policies should not discourage high-value care or incentivize low-value care.

Illustrative Example

Value-based insurance design (VBID) is a demand-side approach to health policy reform, aiming to increase health care quality and decrease costs by using financial incentives that promote cost-efficient health care services and consumer choices. Richardson and colleagues (2019) examined the VBID-X benefit model in a health care plan designed to bring the VBID model to the consumer insurance and exchange market by reducing or eliminating cost-sharing for a select set of high-value drugs and services, such as low-density lipoprotein testing, and increasing cost-sharing for low-value drugs and services, such as high-cost imaging (Richardson et al., 2017). Reductions in cost-sharing for high-value services varied. The cost-sharing for low-value care services was increased to offset reduced high-value service cost-sharing.

The targeted approach aims to avoid increases in premiums and deductibles while staying cost-neutral; the authors cited a recent survey conducted by the Kaiser Family Foundation reporting that 75% of individuals with chronic conditions and high deductibles skipped or delayed care. The authors concluded that VBID-X designs explicitly recognize the possibility of increasing accessibility to services deemed to improve patient-centered outcomes without increasing total health care costs.

The following (Assessment 15) summarizes how the policy achieved discouraging use of low-value treatments and encouraging use of high-value treatments.

Assessment 15. Evaluation of the VBID-X Benefit Model Design (Richardson et al., 2019)

Supporting Detail

Beyond a patient’s underlying biology, factors that drive demand for health care services include behavioral (e.g., smoking, diet), cultural (e.g., diet, views toward health system) and social determinants of health (Adler and Prather, 2015; Artiga and Hinton, 2018). Per the Centers for Disease Control and Prevention (CDC), “social determinants of health include aspects of the social environment (e.g., discrimination, income, education level, marital status), the physical environment (e.g., place of residence, crowding conditions, built environment [i.e., buildings, spaces, transportation systems, and products that are created or modified by people]), and health services (e.g., access to and quality of care, insurance status)” (CDC, 2010). These effects are often not uniformly experienced within and outside the health system; instead, the consequences of these resultant distributional effects are often disproportionately worse for patients with lower socioeconomic status, thus creating significant disparities (Baicker, 2019). Therefore, health care reform approaches should address the barriers created by these underlying factors to the extent that it is possible to change them.

How to Use This Guiding Principle

State, federal, and commercial initiatives that address rising health care spending should consider behavioral, cultural and socioeconomic factors contributing to higher health care spending. For example, health care reform approaches should include (1) incentives that encourage healthy behaviors linked to reduced health care spending and (2) initiatives to reduce cultural barriers that may prevent patients from accessing high-value care. Overall reform approaches should directly address these critical drivers of health care demand. In addition, when a policy targets a population with significant behavioral, cultural and socioeconomic factors, those factors must be considered. Otherwise, the policy may be less successful.

Illustrative Example

The Affordable Care Act included a federal mandate requiring restaurant chains with more than 20 locations to report the calories of items on their menus or menu boards. This requirement was designed to change eating behaviors that contribute to the high rate of obesity in the U.S. (35% of the population in 2011-2012). There is evidence that overweight individuals have an increased risk for many health conditions, including type 2 diabetes, heart disease, stroke and some cancers. Overweight individuals also have an estimated 42% higher annual cost of medical care than individuals of average weight.

Before this national mandate to report calorie information was implemented, the requirement was introduced in New York City in 2008. Following the New York City requirement, two studies (surveys of awareness and cash register receipts) attempted to determine whether customers at fast-food restaurants were aware of the calorie information and whether this information influenced the number of calories purchased from the restaurant (Elbel et al., 2009; Cantor et al., 2015).

Both studies showed that consumers were aware of the information and claimed to use the information, although awareness and use declined during the interval between the two studies. However, both studies showed that there were no statistically significant changes in levels of calories or nutrients purchased in restaurants displaying calorie information on their menus. In addition, the second study showed that there was no decrease in the frequency of visits to the fast-food chain restaurants with menu labeling. Thus, the authors of the second study concluded that “Menu labeling at fast-food chain restaurants, which the Affordable Care Act requires to be implemented nationwide in 2016, remains an unproven strategy for improving the nutritional quality of consumer food choices at the population level. Additional policy efforts that go beyond labeling and possibly alter labeling to increase its impact must be considered.”

The following (Assessment 16) summarizes how the study addressed factors driving overall health care demand, including behavioral, cultural and socioeconomic factors.

Assessment 16. Evaluation of the Federal Mandate for Calorie Reporting on Fast-Food Chain Restaurant Menus (Elbel et al., 2009; Cantor et al., 2015)

Supporting Detail

Misaligned incentives within the U.S. health care system play a key role in driving health care services’ utilization and pricing. This effect can be negative by creating and promoting low-value care. Sources of misaligned incentives can include reimbursement policy, competition, regulation, malpractice laws and tax policy (Peter G. Peterson Foundation, 2020; American College of Physicians, 2009). Examples of these misaligned incentives impacting price and utilization exist throughout the health care system. For example, patients may not receive high-value health care services due to reimbursement policies that restrict provider or site-of-care options. Another example is the tax incentive for selecting generous employment-based health benefits for highly paid individuals, leading to the overconsumption of low-value medical care. In a third example, when various regulations and tax policies influence consolidations in the health care market, limited competition may lead to higher health care prices. Finally, a fragmented health care system may result in inefficient care coordination due to more administrative complexities. Therefore, the overall health care reform approach needs to identify and address the most critical structural deficiencies.

How to Use This Guiding Principle

State, federal or commercial reform initiatives targeting rising health care spending should address misaligned incentives contributing to wasteful spending and higher prices for health care services. Such policies should include active monitoring strategies to identify unintended consequences as they emerge. Misaligned incentives are not expected to be the focus of every individual policy. However, each new policy should be evaluated to determine whether it creates additional price and/ or utilization distortions.

Illustrative Example

The Affordable Care Act included a proposal to levy an excise tax on high-cost health insurance plans (known as the Cadillac tax). The aim was to help fund the extended health care coverage under Medicaid expansion and control rising health care costs. A study by Warshawsky and Leahy (2018), using National Compensation Survey data to analyze who would be impacted by this tax, estimated that between 11% and 12% of workers participating in employer-provided health plans in 2020 would be subject to this tax. The authors further estimated that the percentage of workers would rise to approximately 25% by 2025 (Warshawsky and Leahy, 2018). The percentages of workers subject to this tax would vary by worker characteristics (region, number of employees at the company, unionization, industry and occupation). The authors concluded, “Economic theory would predict that employees and employers will substitute away from high premium plans and toward plans with higher deductibles and lower premiums. In addition, firms’ attempts to reduce their overall tax burden should lead to tighter negotiations with providers and, eventually, to more serious engagement by employers, employees, and insurers in managing health plans and reducing costs.” However, the authors did not cite any studies supporting these assumptions (Warshawsky and Leahy, 2018).

The following (Assessment 17) summarizes how the study addressed structural deficiencies that may distort utilization and price.

Assessment 17. Evaluation of the Excise Tax on High-Cost Health Insurance Plans (Warshawsky and Leahy, 2018)

Supporting Detail

Continuing innovations in health care delivery systems and treatments are critical to address inefficiencies in the current system and improve patient outcomes in many acute and chronic diseases. Health care spending policies should provide incentives to payers, providers and developers to improve system efficiency or provide high-value care that improves patient health outcomes. Where possible, such policies should avoid creating disincentives (Institute of Medicine, 2013).

How to Use This Guiding Principle

Policy reforms to moderate health care spending should consider the potential consequences of the overall initiative on innovations in health care delivery systems and treatments. As such, reviewers should evaluate policies for impacts on innovation incentives and potential consequences for patients.

Illustrative Example

The Medicare prescription drug benefit (Medicare Part D) is an optional federal program covering self-administered prescription drugs among Medicare beneficiaries. The program was implemented in 2006 and was followed by an increase in self-administered prescription drugs among seniors. Blume-Kohout and Sood (2013) assessed the positive impact of Medicare Part D on pharmaceutical research and development by using time-series data on the number of drugs entering preclinical and clinical development, categorized by therapeutic class and phase. The authors found that the passage and implementation of Medicare Part D was associated with significant increases in pharmaceutical research and development activities for therapeutic classes with higher Medicare market shares. Figure 1 presents a comparison of the research and development activities for drugs developed between 1998 and 2010 for treatments for Alzheimer’s disease compared to drugs developed in the same period for hormonal contraception (Blume-Kohout and Sood, 2013).

The following (Assessment 18) summarizes how this example addressed the reward for long-term innovation in health care delivery systems and treatments.

Assessment 18. Evaluation of the Impact of Medicare Part D on Long-Term Innovations and Population Health Outcomes (Blume-Kohout and Sood, 2013)

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