Medicare Compliance & Reimbursement

Health care costs continue to increase rapidly, employers are shifting more costs to employees, and there's little relief in sight. That's the assessment of today's health care marketplace offered in the latest issue brief from the Center for Studying Health System Change, based on early findings from the group's 2002-03 visits to 12 nationally representative communities.

At a time when many are counting on market forces to rein in Medicare costs, HSC offers a warning: "Health care executives, employers, and state and local policymakers interviewed for this study have become increasingly skeptical about the ability of market-led solutions to rein in rapidly rising health care costs."

In some respects, including the slow economy, the situation resembles the early 1990s, HSC says. But back then, "there was a great deal of optimism ... about managed care and integrated delivery as an effective strategy to control rising ... costs and rationalize the ... system."

Today, managed care is largely a spent force, having fallen victim to a backlash from patients and providers, HCS observes. Many plans have scaled back utilization-management techniques like gatekeepers and prior authorization. Broad provider networks are now the norm, leaving plans with little leverage in negotiating payment rates. Global capitation arrangements have largely disappeared, and even primary care capitation has substantially declined, eliminating incentives for providers to control utilization.

Now, according to HSC, employers are looking to consumer-driven health care as a new cost-control mechanism. But "the price and quality information consumers will need to make informed choices about cost, quality, and accessibility of care are still lacking for the most part, making the idea ... a long-term strategy at best."

In the meantime, more employers are increasing cost sharing, as compared to HSC's last round of site visits two years ago. Some firms that have never done so before are requiring workers to make premium contributions. Many companies that already require such contributions are increasing copayments and deductibles, and many employers are replacing fixed copayments with percentage-based coinsurance.

For their part, providers liberated from managed care are pursuing two strategies, both of which can push costs higher. First, providers are pressing health plans for better payment terms, in part to make up for declining Medicare and Medicaid payments and to alleviate cost pressures from new technologies and the higher wages required by the skilled labor shortage. Hospitals have had the most success in achieving higher rates; however, in contrast to what HSC found two years ago, in some cases plans have managed to stare down hospitals, "in part because employers have shifted allegiance from providers to plans in the face of rapidly rising costs."

Second, "both hospitals and physicians are fueling competition for profitable specialty and ancillary services, resulting in continued build-up of capacity and technology" in lucrative areas such as cardiac, cancer, and orthopedic care. "To the extent that payment policies disproportionately value some services over others, public and private payers may inadvertently may be driving niche competition for these services and undermining the ability of general acute care hospitals to maintain capacity for other services."

This competition for well paying niches illustrates the general observation that ends the brief. Many stakeholders, "see health care organizations as responding to the immediate pressures in their environment ... in ways that are often at odds with the goals of controlling overall health care spending and protecting access to high-quality care."