Three Steps to Address Healthcare Spending of New Technologies
By - Healthcare spending accounts for a wide variety of procedures, services, and technologies adopted or offered by medical providers, payers, and patients. In recent years, the healthcare industry has also begun implementing new technologies and medical devices to innovate as well as improve patient care and safety.
Ever since the Centers for Medicare & Medicaid Services (CMS) has established meaningful use requirements under the EHR Incentive Programs, more healthcare providers than ever before began incorporating electronic patient record systems within their medical practice or hospital. Such an influx of new technologies has a direct correlation to the rise in healthcare spending. The EHR Incentive Programs are meant to stabilize these costs.
A paper published by the Hamilton Project called Correcting Signals for Innovation in Health Care discussed how much Medicare was billed for both existing and new medical technologies over the last few decades. New technologies are ones developed after 1997 and existing ones were created before that year.
The results show that healthcare spending related to implementing technologies grew at a steady pace from 1998 to 2011. Four years ago, one-third of all Medicare costs were related to the adoption of new technologies or medical devices.
When healthcare spending is involved, it is important to urge technology development that ensures higher quality care and real innovation instead of devices that increase costs but do little for overall healthcare quality.
Policy efforts related to reducing overall healthcare spending is vital and the federal government has put forth some programs such as the development of Accountable Care Organizations and bundled payment systems.
While these programs do put financial risk onto the healthcare provider and minimize the unnecessary use of current technologies, they do little to address the requirements behind innovation. The paper from the Hamilton Project proposes three ways to urge the development of new technology that has adequate value for the funds invested in its creation and manufacturing.
These three steps include: (1) Congress removing health insurance tax subsidies for high-paid employees, (2) Congress repairing Medicare’s coverage determination procedures so that treatments offering “insignificant health benefits at high cost” are not covered, and (3) the Centers for Medicare & Medicaid Services to consider using reference pricing.
This method is done to allow insurers to pay a single reference price for all therapies with similar outcomes completed. This would mean patients would have to cover the rest of their medical costs out-of-pocket. The paper further argues that many treatments and technologies used in the healthcare field is directly related to the overall reimbursement among providers.
“Perhaps the primary explanation for high rates of inefficient use of medical technology is widespread use of reimbursement methods that encourage a high volume of care without regard to its value,” states the Hamilton Project paper.
“While providers grimace at the suggestion that they respond to financial incentives, rigorous empirical analysis shows that this is in fact the case. For example, Clemens and Gottlieb (2014) find that a 2 percent increase in physician payment rates leads to a 3 percent increase in care provision. The effect is larger for elective procedures (such as cataract surgery) than it is for services that are less discretionary (such as open-heart bypass surgery).”
The publication proposes a solution to the costs associated with medical technologies via a tax code among employer-sponsored health insurance plans.
“Making innovation sensitive to the preferences of consumers requires addressing the differential demand for the coverage of health-care technology between high- and low-income employees,” the paper proposes.
“Recognizing the likelihood that employer-sponsored plans (and, therefore, their premiums) reflect the preferences of high-income employees, we propose to undo the implicit crosssubsidy that occurs when lower-income employees pool their demand with their higher-income counterparts. To achieve this, Congress should replace the tax exclusion for health insurance with a tax credit for employer-sponsored insurance—a fixed amount that each taxpayer could subtract from her overall tax liability—that phases out as income increases.”
