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Reducing Health Care Spending: Promising Approaches for Massachusetts and the United States

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In 2006, Massachusetts passed landmark legislation extending near-universal health insurance coverage to its residents. However, the rising cost of health care services threatens the long-term viability of this initiative. In the absence of policy change, health care spending in Massachusetts is projected to double over the next decade. Is it feasible to reduce this rate of spending growth? If so, what are the most promising strategies for doing so? Concerns about the rate of spending growth are raising the same questions in the current congressional debate over national health reform. Federal policymakers are looking to the Massachusetts experience for insight about possible outcomes of national health reform.

Researchers from RAND Health estimated the effect of policy options for reducing health care spending in Massachusetts. Using a modeling approach, RAND developed high and low estimates of cumulative cost savings over ten years for 12 specific options. The high savings estimates assumed that optimistic scenarios, informed by previous experience, would apply. Low savings estimates assumed more conservative scenarios.

The analysis found that under optimistic scenarios, it would be feasible to reduce the growth of health care spending.

  • The most promising cost-containment options involved changing methods of paying for health care services. Of these options, the one that yielded the greatest estimated savings was bundled payment, an approach that provides a single payment for all services related to a treatment or condition. Bundled payment creates an incentive for providers to assume some risk for preventable costs. Bundled payment thus provides a mechanism for reducing the volume of services and the prices charged for them. This approach has proved effective in limited demonstration projects.
  • Some popular strategies, such as disease management, value-based insurance design, and medical homes, were not promising for containing health care costs. While these strategies would likely improve the quality of health care, they require significant initial investments and have a mixed record of savings, which makes them unlikely to reduce spending.
  • Some infrastructure-related options, such as increased use of health information technology, would not produce substantial savings by themselves but would provide a foundation for implementing other policies.

Two factors explain why some options are more promising than others: They affect a larger population and contain a clear mechanism for reducing prices or lowering the quantity of services.

In subsequent analyses, the researchers extrapolated from the Massachusetts results to estimate the effects of cost-saving options for the U.S. health care system as a whole. The results were similar to those for Massachusetts. Changing from a fee-for-service approach to bundled payment yielded the greatest estimated savings. However, to be most effective, this system would need to be applied to ambulatory care for chronic conditions—not just acute inpatient care (for which Medicare already uses a bundled payment approach). Other popular approaches, including disease management, medical homes, and increased use of retail clinics, did not yield substantial savings. The researchers caution that estimates of savings from all options are uncertain because none has a strong history of reducing spending on a large scale.

Moving from these estimates to concrete steps in Massachusetts and at the national level will require bold action. Implementing several promising approaches in combination will be required to reduce spending significantly. At the federal level, the reform legislation moving through Congress currently includes both promising and unpromising approaches. What is needed is an effective strategy for designing interventions for promising approaches, evaluating them, and then deciding within an appropriate time frame whether to abandon them or systematically deploy them nationally. Many strategies have worked on a small scale, but there are almost no examples of successful replication. A common set of tools for design, evaluation, and assessment would enable policymakers to embrace or reject policy options based on evidence.

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Peter Hussey

Peter Hussey

Peter Hussey is a policy researcher at RAND and holds a Ph.D. in Health Policy and Management from the Johns Hopkins Bloomberg School of Public Health. His research interests center on reforming the health care delivery system. Hussey has conducted research on provider payment reform, health care efficiency measurement, and quality measurement and improvement. He is a coinvestigator on RAND's COMPARE study of health policy initiatives, working to develop the evaluation framework and evaluate the effects of commonly proposed policies for the health care delivery system. He has also conducted multiple studies at an international level: comparisons health care costs and quality, physician migration, recommendations for reforming the health care financing system in Qatar.

Read more about Mr. Hussey »

This reasearch was also conducted by Christine Eibner.


Lindsey Kozberg
Vice President, Office of External Affairs

Shirley Ruhe
Director, Office of Congressional Relations

Kristy Anderson
Health Legislative Analyst

RAND Office of Congressional Relations
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