Efforts to measure and raise awareness about low-value care, often driven by state data agencies, have been growing. For example, states such as Colorado, Maine, Virginia, and Washington have been able to use all-payer claims databases to track spending on potentially wasteful services. In Colorado, the Center for Improving Value in Health Care found that 13 services accounted for 81 percent of all low-value spending, with eight of those services having the potential to harm patients.23 The Virginia Center for Health Innovation (VCHI) identified more than 2 million low-value services that contributed to almost $750 million in spending, such as baseline laboratory studies in patients without systemic disease undergoing low-risk surgery.24
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Efforts to eliminate low-value care focus on education or incentives. For example, with regard to education, Colorado plans to generate and share provider-specific data to encourage improvement at the local level.25 In addition, VCHI created the Smarter Virginia Health Care Coalition and is working with the state’s major health systems to reduce the use of low-value services. This involves training and educating physicians and developing strategies, in conjunction with large health systems, to reduce low-value care.
With regard to incentives, payment models, such as accountable care organizations (ACOs), reward providers for providing high-value care and reducing unnecessary spending. While not targeted exclusively at low-value care, these efforts have been shown to reduce the utilization of low-value services. Value-based insurance design (VBID) plans, which typically incentivize patients to choose services whose clinical benefits exceed the costs or services that are high-value, sometimes also actively discourage the use of low-value care.
Commissions may be useful in supporting efforts to reduce low-value care. They can help interpret and publicize state measurement activities. They can develop priorities regarding which low-value care services to focus on. In some cases, they may develop more aggressive strategies, or even penalties, designed to discourage use of low-value care.
Holistic strategies are designed to influence spending overall, as opposed to particular components such as prices or utilization. The broadest holistic strategies target total cost of care or premiums, but more limited versions may target episodes of care or spending from specific provider types, such as inpatient hospitals. These approaches typically assign individuals to accountable entities, such as insurers or provider systems, and hold those entities accountable, to varying degrees, for spending. Examples of these strategies would include premium regulation and encouraging alternative payment models or global hospital budgets (particularly those that extend responsibility for care delivered outside of the hospital).
Soft holistic approaches could involve monitoring and reporting spending or encouraging policies that promote alternative payment models. For example, states could use alternative payment models for Medicaid or state employees, which could induce participation in such models in the commercial sector. In other cases, states could use soft sanctions if spending targets are exceeded. For example, in Massachusetts, the state attributes patients to providers and can require providers to file improvement plans if spending exceeds the target. In these approaches, provider systems are accountable for total spending, which makes them responsible for care delivered by organizations outside of their system. While provider systems may be able to influence that care, or which providers their patients visit, it may be problematic to severely penalize providers for actions that they may have only limited control over.
Other states have adopted stronger approaches. For example, Arkansas previously used a multipayer, episode-based payment model. This had been facilitated by a collaboration between the state’s Medicaid program and the state’s largest insurer, which had a dominant market share. However, the state’s program was limited by the number of conditions suitable for episode payment — those with clear episode definitions and sufficient volume to adequately adjust for risk differences. Their experience suggests that episode-based payment may be more useful for a limited and targeted set of conditions. Maryland has been successful with a broader hospital budgeting model. Though the state’s model was initially limited to price regulation, it evolved to a hospital global budgeting model and has recently expanded to include some responsibility for total costs of care.
An alternative approach would be to hold insurers accountable for the total costs of care. Insurers are a natural target because insurers aggregate all spending (claims costs, other financial transfers, and insurer administration) to the population level and, therefore, have the broadest scope. To the extent that the core concern is high premiums, insurers are the most proximate organization to the policy target.
There are complications to using a holistic approach, however. For example, insurers must negotiate prices with providers, and, if providers have significant market power, insurers may not be able to successfully control spending. Moreover, some tools that insurers may use to control spending, such as narrow networks or utilization management, may not be acceptable to customers (or policymakers), making it difficult for insurers to meet any premium targets without pressure on providers. If the premium targets are too strict relative to available tools, some insurers may leave a market, further complicating cost-containment activities.
Finally, there are some regulatory barriers to focusing on insurers. In 2019, 61 percent of Americans with employer-sponsored health coverage were enrolled in self-insured plans.26 As a result of the federal Employee Retirement Income Security Act (ERISA) and its preemption clause, states have long considered it more difficult to regulate these plans.27 However, this may be changing, given the recent U.S. Supreme Court decision in Rutledge v. PCMA.28 In Rutledge, which involved state regulation of pharmacy benefit managers, the Court stated that “ERISA does not preempt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.”
Many holistic strategies also require attribution of patients to providers. For example, in Maryland, the state attributes patients to hospitals using a multistep process based on first attributing the patients to physicians and then attributing the physicians to hospitals. In cases where patients cannot be attributed using that method, other approaches are used, such as using geography.
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Similarly, holistic approaches also must address risk adjustment. Risk adjustment is included in many existing population-based programs, such as in health insurance marketplaces, the Medicare Advantage program, and the Medicare ACO program. Although adjustment models seem to perform acceptably, there are concerns about both the fit of the models and the susceptibility of the models to changes in provider coding behavior. For example, Massachusetts and public programs such as Medicare Advantage have seen very large increases in risk scores.
Strategies to combat coding increases are therefore very important. The Centers for Medicare and Medicaid Services adopts several such strategies for ACOs, including normalizing risk scores each year and capping risk-score growth. Moreover, holistic models, such as population-based payment models, are best suited for large provider groups. Holding small practices accountable for total spending is more problematic, even when risk adjustment is working well, since risk adjustment accounts for expected utilization and there may be wide variation in actual utilization.
The choice among holistic strategies depends on many factors. If the delivery system is very fragmented, soft strategies that focus on episodes may be preferred to population-based models, such as an ACO, because small providers may not be well suited to manage risk. Moreover, relative to population-based approaches, episode-based models are less reliant on attribution (for many episodes) and risk adjustment. Still, episode-based strategies often only cover a portion of spending, often missing patients with multiple, complex chronic conditions. Population-based and global budget models are more comprehensive and are well suited to address both the medical and social needs of high-risk and high-cost patients. But these broader models are best suited for larger delivery systems. And though broader payment models do not need to address overlap in episodes or medical conditions, the issues related to risk adjustment and attribution are more salient. Maryland’s model has evolved over time from a price-setting model to a hospital-budgeting one and now has begun to transition closer to a population-based payment model.
It is worth noting that holistic strategies do not have to be pursued alone and may complement other approaches. For example, states taking a holistic approach may adopt any of the other strategies with respect to competition, prices, or even utilization to support the ultimate goal of lower statewide spending. Rhode Island not only used inflation caps but had hospitals transition from per diem to DRG-based payments to slow the growth of health care spending.29 The state also combined these efforts with requirements for commercial insurers to increase their spending on primary care and care coordination services (see box).
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