Vitori Health

January 31, 2023

3 min

Health Affairs has launched a timely analysis of physician, hospital, and other health care provider prices in private-sector markets and their impact on overall spending. We applaud this pursuit of definitive answers but until such truths are revealed, employers won’t have any cost relief any time soon.

The Forefront series, Provider Prices in the Commercial Sector, kicked off with an excellent article discussing what Health Affairs considers “under-explored burning questions in the price debate” that they think deserve attention. We couldn’t agree more!

Read the full article when you can. In the meantime, we’ve highlighted key takeaways to help frame this important conversation for employers and all stakeholders seeking lower health care costs and a better member experience.

  1.   Do Poorly Set Public Prices Distort Commercial Prices?

Our current systems for setting prices in public programs are flawed. For example, Medicare pays different amounts for the same service delivered in different settings and reimburses more for higher cost drugs. Additionally, relative value units for physician services are often inaccurate. Although there is some evidence that higher Medicare prices lead to higher commercial prices, more evidence is needed.

  2.   How Should Services Be Defined?

Our payment systems rely on very granular service definitions. For example, there are ten CPT codes for office visits. This creates opportunities for providers to choose more lucrative codes and adds administrative costs. The general sense is that our system has erred on the side of too little standardization. Broader service categories may be desirable.

  3.   How Does Quality Respond To Changes In Pricing?

Cross-national evidence suggests countries paying lower prices do not suffer significantly worse quality of care. Studies of mergers and prices suggest antitrust activities may lower prices but not degrade quality, supporting the position that policies intended to lower heath care prices do not necessarily impact quality adversely.

  4.   How Should We Price New Digital Services?

Given the fee-for-service chassis of the US health system, the instinct is often to create codes for these services and then assign prices, but that is problematic. For many interventions, there is limited evidence about their appropriate use.

  5.   How Much Spending is Flowing Outside of The Claims System?

Most pricing research is based on claims data, a valuable but flawed resource. Increasingly, funds are flowing from payers to providers outside of the claims system via fixed payments, quality bonuses, or shared savings from alternative payment models.

  6.   Are Pay-for-Performance Systems Worth It?

There is a growing body of evidence suggesting value-based care incentives are not effective. Often, quality measures are not tied closely enough to health outcomes to merit additional payments. Operating these models is expensive and may distract from other activities. It is reasonable to conclude that some of these systems should at least be scaled back, maybe even abandoned, until better, more targeted approaches to eliminating substandard care and improving quality can be designed.

  7.   To What Extent Do High Prices Reflect Higher US Production Costs and Why?

While we know market power and a lack of pricing transparency and direct competition is an important determinant of higher prices in the US, a further understanding of production costs would be valuable. In part, health care prices likely reflect higher labor costs in the US. Prices of technologies are higher in the US compared to other nations. And the complexity and fragmentation of the American health care system create higher administrative costs, driving higher prices.

Closing Thoughts

It takes time to delve into these questions and implement solutions for changing the American health care model. The more immediate imperative for employer commercial plan sponsors is to take the reins now with a health plan that is proven to reel in claims overspending while improving benefits and providing a better member experience.

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