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Health Care Costs: Research to Inform Policy
RWJF HCFO Initiative
The Robert Wood Johnson Foundation, through
its Changes in Health Care Financing and
Organization (HCFO) initiative, is issuing a special
topic solicitation for proposals to conduct research
and analyses on the complex causes and potential
solutions to rising health care costs. This solicitation
is in support of the Foundation’s activities to
increase health care coverage. AcademyHealth is
managing the solicitation in its role as the national
program office for the HCFO initiative.
Rising health care cost growth affects individuals,
employers, providers, private insurers, the Medicare
and Medicaid programs, and a host of other
stakeholders. Unrestrained cost growth makes the
search for new insurance prod ucts and benefit
packages more pressing. Yet, we do not know how
to accurately price these products to increase takeup,
nor do we know the impact of price on use and
overall costs. Further, we do not fully understand
how continued cost growth will affect the level of
health insurance coverage throughout the country.
Policymakers, researchers, providers, and health
plans have made various attempts to define and
quantify the extent of the problem, as well as the
root causes. A multitude of public and private
solutions have been proposed to address various
components of rising health care costs. However,
there are a number of knowledge gaps that hinder
the search for solutions.
FRAMEWORK
Spiraling health care costs in this country have
reached crisis status. Solutions are overdue and
urgently needed. Inappropriate medical care,
administrative inefficiency associated with the
various components of the payer/provider/patient
interface, an intractable uninsured population,
insufficient preventive services, the everexpanding
market for new medical technologies
and pharmaceuticals, and the “baby-boom”
demographic that increasingly draws on medical
services are some of the factors that continue to
drive health care costs higher. This list
is not exhaustive and costs are likely to continue
to rise unless systems are developed to create
efficiencies and modernize and simplify health
care. Until solutions to cost growth are achieved,
we are unlikely to realize significant expansion in
health care coverage.
RESEARCH QUESTIONS
This solicitation seeks research contributing to
an evidence base that defines and addresses the
problem of rising health care costs, and how it
relates to health insurance coverage. Research should
focus on identifying sources of continued cost
growth, examining promising cost control efforts,
and exploring the relationship between health care
costs and health insurance. The research questions
are broken down into four major categories (Cost
Controls, Affordability, Pricing, and Cost Estimates).
The questions are not an exhaustive list, but they
have been identified among the priorities for the
Foundation. However, these should not be viewed
as prescriptive. Our goal in suggesting questions
and areas of interest is to stimulate researchers to
develop creative, policy-relevant projects.
Cost Controls
Without cost controls, aggregate health care
spending for public and private payers is
estimated to reach 20 percent of Gross Domestic
Product (GDP) by 2015. What do we know
about the underlying reasons for the cost
increases (e.g. technology, obesity, etc.)? Will the
current movement toward more evidence-based
medicine promote efficiency and the delivery of
effective care, and discourage unnecessary tests
and marginal therapies? Would creating greater
price sensitivity among consumers eliminate
unnecessary utilization and slow spending
growth? How might this be done? What are the
mechanisms to control health care costs?
- Better understanding of the problem
Can we track cost growth by different levels of disability; by cohorts of people; by disease groups? What is the effect of small-area variation over time?
- Understanding differences in
cost growth
What are the impacts of different policies
at the state level on cost growth? What
private models exist that might serve as
a complement to public action? What
components should be included in a
system to track best practices in terms
of cost control, and how might those
practices be disseminated? What factors
predict dissemination of best practices?
What is the effect of globalization of
medical care on health care costs? What
have other parts of the economy done to
control costs through globalization? What
is the impact of supply (both individual
and institutional providers) on cost
growth?
- Physician practice and cost growth
What is the potential for Quality Report
Cards or P4P to reduce cost growth?
What are the effects of physician practice
style on health care costs? Which are the
best practices? How best can physicians
be informed about differences in practice
styles and their cost implications? What
would the cost growth trend look like if
less effective physician practices exited the
market? Do health care markets look and
react differently depending on the mix of
physicians? What is the impact of nonphysician
professionals in a market? Do
certain mixes produce desired results, e.g.
more primary care?
- Technology
How do we define “new technology?”
Are the new technologies that account for
most of the expenditure growth a relatively
small number of discrete and wellidentified
items, or many small advances?
How has comparative effectiveness and/or
technology assessment been used to reduce
the rate of growth of new technology?
How do you promote diffusion to the
point of marginal benefits, but slow the
diffusion once it generates less marginal
benefit? How do the differences in the
way we adopt new technologies affect
utilization and pricing? Does this apply to
new procedures, as well as new drugs and
devices? Are there ways to change these
processes that would not result in negative
outcomes? Is there a reduction in unit
price for a less invasive procedure? How
much cost sharing is needed to provide the
appropriate use of care?
- Other cost control tools
What is the potential of disease
management/case management to control
baseline costs? Cost growth? Can we
develop ways to do this better, particularly
given the growing chronic disease
population? What is the impact on costs and
cost growth of the current shift from health
care to wellness programs? What is the
potential of health information technology
(HIT)/electronic health records (EHRs) to
reduce cost growth? Are there best practices
of HIT use to restrict cost growth? What
can be done to address the supply side? Do
certificate of need (CON) practices utilized
by states work to reduce costs or cost
growth? Under what conditions? Are there
other supply side interventions that could
constrain costs?
Affordability
Affordability is not just the cost of insurance.
Affordability encompasses numerous
components, including premiums, out-ofpocket
(OOP) costs, life necessities, etc. In
order to develop the most effective policies
for controlling costs, while maintaining
affordability of health care, we must consider
the locus of the health problems, not only
currently, but five years from now. Critical
questions include: At what income threshold
do individuals typically find a health insurance
premium to be affordable? What financial
or quality of life tradeoffs are individuals or
families willing to make when considering
the purchase of health insurance? What
fraction of health care spending is medically
necessary? In addressing affordability,
policymakers must consider how to design
insurance policies that balance affordability
and the need for subsidies. Understanding the
impact of stop loss policies and mandatory
coverage is critical to this exercise.
The framework for the following areas of
interest is that of a national policies rather
than state reform proposals and policies. 1
- Defining affordability for different
subgroups
What “costs” are considered when defining
affordable health care? How is affordability
measured? Over what period of time?
Should affordability measures be different
for chronic versus acute conditions? How
price sensitive are consumers? What
percentages of people have high OOP
expenses persistently versus episodically?
Should affordability be measured
differently for those with persistently high
costs? How does spending on premiums
and OOP costs vary by health status and
the presence of chronic conditions at
different income levels? Is it possible to
add a health status dimension to income
and OOP dimensions in determining
affordability? Why don’t some people
purchase insurance coverage, especially if
a significant proportion of persons in their
income and age bracket do? Are mandates
needed? What is the maximum target for
sliding scale subsidy?
- Benefit design
Do the uninsured need coverage for “basic
and essential services” or catastrophic
care? What is the best way to insure the“young invincibles” who elect not to buy
health insurance? Risk pools? Catastrophic
coverage? What is the role of a “sick tax,” such as co-pays and deductible increases?
What tools are available for individuals
to better understand their OOP burden?
What effect does providing these tools
have on the choices people make? How do
you communicate the structure of benefits
to beneficiaries?
- Financial Distress
What measures can be used to monitor
financial distress (e.g. credit card debt,
foregone purchases)? Is it possible to track
distress longitudinally? Are there recurring
patterns? What are the steps along the
continuum from wellbeing to distress to
bankruptcy? Is financial distress caused
by chronic illness or catastrophic event?
What do you do with the answer to these
questions?
Cost Estimates
Health care cost estimates, by their very
nature, are inexact, yet they play a critical role
in the potential success of reform proposals.
Many complex assumptions are used to create
estimates and policymakers who use these
projections in their decisionmaking must
consider individual, social, environmental and
a host of other influences that could affect
costs over time. Critical questions include:
How accurate are cost assumptions? Do they
account for indirect impacts? How might we
estimate costs more accurately?
The cost of insurance is not easy to estimate.
It is not a trivial exercise to examine the cost
implications of insurance expansion initiatives.
Trajectory over time is a critical component.
What does it mean for cost estimate models
that health care costs have historically risen
faster than GDP? While it is appealing to
believe you can keep people healthy and
save money, putting more individuals into an
inefficient system is unlikely to save money or
create efficiencies. If efficiencies are gained,
they may be limited.
- Estimating costs of coverage
expansions
What is insurance take-up at different
income levels? What subsidies are
required? What is the impact of insurance
on health service use? Does this change by
type of insurance or benefit design? What
is the impact of longevity? What system
efficiencies are created by expanding
coverage? How would coverage expansion
affect new technology? What is the effect
of lost coverage on new technology? Does
good health have productivity effects,
leading to more economic growth? Is it
possible to evaluate interventions that keep
workers healthier? How do you measure
productivity? What are the larger, global
equilibrium effects of increasing coverage?
- Documenting negative effects from
status quo
Employers are being crippled by health
care costs. Is there a way to shift these
costs and allow the employers greater
economic improvements? Does this simply
shift the costs across employers? What
are the ramifications of higher health care
costs on regional competitiveness?
Pricing
One of the challenges of understanding
the role of pricing as a contributor to cost
growth in health care is the fact that there is
no single price for any medical service, nor is
there a unique “efficient” cost that underlies
an administratively determined price. It is well
known, for example, that in both the hospital
and physician sectors, providers typically
charge different prices to different payers for
the same services. According to economic
theory, these multiple prices depend on a
combination of providers’ market power,
buyers’/payers’ demand functions, and the
underlying costs of production at various
levels of capacity utilization.
The prices of medical services also play a
key role in the pricing of insurance products,
since one of the fundamental concepts
underlying health insurance premiums is the
expected medical care costs across a pool of
individuals. Therefore, understanding how
insurance premiums are set and how they
change over time requires understanding
how insurers set, accept, or negotiate medical
care prices with providers, and how insurers
interact with potential insurance buyers (large
groups, small groups, individuals) to form risk
pools, evaluate their risk levels, and determine
the parameters of the insurance contract
(benefits, administrative costs, renewability).
The observation that medical care providers
can be both price setters/negotiators in
their dealings with private insurers and
privately insured or uninsured patients, as
well as price takers when serving publicly
insured (Medicare and Medicaid) patients
suggests different sets of research issues/questions regarding the pricing of medical
care services and insurance products. How
could reimbursement more accurately reflect
appropriate costs?
- Price Setters/Negotiators
Is it possible to take advantage of
variation in local market structures in
setting prices? Can one incorporate other
market signals into pricing? What is the
effect of cost shifting on prices? What
are the effects of provider and insurer
market concentration/competition and
type of ownership? What is the effect of
spillover and interaction with other prices?
Are prices an artifact of reimbursement
systems? When private prices or private
demand change in a market, what is
the impact on the quantity of services
provided to public insurance beneficiaries?
What is the impact of demand on price?
What are the changes in demand that
might be due to changes in insurance
coverage (or type of coverage)? What
impact should supply have on price?
- Administered Pricing
What is the interaction in rate-setting
between private profits and public rates?
How are formula benchmarks chosen?
How should “efficient prices” be set? Do
you pay enough just to ensure access?
Should Medicare prices for physician
services be based on something other than
“time and intensity?” Should they be based
on whether the care is evidence-based?
How might the results of comparative
effectiveness studies be ncorporated into
price setting?
- Insurance Pricing
What is the effect of guaranteed renewal
on insurance prices? What is the effect
of tax policy on prices? If the tax subsidy
on employer sponsored insurance (ESI)
promotes generous benefits, what might
happen if the subsidy were reduced
or eliminated? What are the effects
of reinsurance and high risk pools on
insurance prices? What is the impact of concentration or competition in the private
insurance market? What is the effect of
mandatory insurance and type of managed competition on both insurance premiums
and consumers’ insurance choices?
- Baseline data
When prices change, what happens to
quantity and quality? How do the prices
paid by private insurers interact with each
other and with Medicare/Medicaid? How
does the rate of change compare? Does
pricing accurately reflect change in costs
over time? How do prices paid by private
insurers for new technologies diffuse
and underlying costs change (decrease)?
Are price changes related to the size of
physicians’ practices and their ability to
manage the use of expensive medical
equipment and devices? How is pricing
developed under bidding systems? What
is the variation in hospital prices and how
do price variations reflect differences in
underlying costs, quality, patient outcomes,
or market structure?
APPLICATION CRITERIA
All projects will begin on January 1, 2008.
There is no predetermined dollar amount;
however, projects should be structured to
not exceed 18 months. Prospective applicants
should consider the questions identified
above as a starting point for the development
of research projects. Research projects that
will directly inform policy are of particular
interest. We expect to fund six to eight
projects. The projects can use quantitative
and/or qualitative analyses and employ a wide
variety of research tools and data sources.
Researchers should have a demonstrated track
record in health services research, economics,
financing, or public policy. Junior researchers
may apply as the principal investigator.
However, to be competitive, the proposal
must provide evidence that there is sufficient
senior research oversight and support.
APPLICATION PROCEDURE
This solicitation is open to all qualified
applicants. Unlike the general HCFO
grantmaking process, this solicitation features
a batched application process. Therefore, all
proposals submitted under this solicitation will
be reviewed simultaneously and competitively.
All applicants are required to submit a brief
proposal on or before Monday, August
6, 2007. Please follow the application
instructions on the HCFO Web site, hcfo.net/applylargergrant.htm, for
submitting brief proposals. As noted in the
instructions, brief proposals should be no
more than 4 pages, and should include a
brief description of the proposed research,
an estimated budget and timeframe, and the
qualifications of the principle investigator(s).
Applicants should identify in the title of
their project that they are responding to this
solicitation. Simply add “(Cost Solicitation)”
following the title.
Upon review of the brief proposals, projects
will be selected in August and invited to
submit full proposals. Please do not submit
a full proposal unless invited to do so. Full
proposals submitted under this solicitation
should also follow the application instructions
on the HCFO Web site, hcfo.net/applylargergrant.htm for submitting full
proposals. Full proposals are due on or before
Monday, October 1, 2007.
Proposals will be evaluated on the:
- degree to which the project addresses the
most critical issues relating to health care
costs and insurance coverage;
- degree to which the findings are policy
relevant and useful to practitioners and
decision makers;
- the appropriateness and feasibility of the
methodology (including access to relevant
data);
- uniqueness of the project and potential
contribution to building the evidencebase
for controlling health care costs and
increasing health insurance coverage; and
- experience and qualifications of the project
team and their commitment to carrying
out the proposed tasks.
We encourage you to call us with any questions
you have about topic areas or scope of potential
projects. You may contact Sharon B. Arnold,
Ph.D., Director, HCFO Initiative, or Bonnie J.
Austin, J.D., Assistant Deputy Director, HCFO
Initiative at 202-292-6700.
__________________
ENDNOTES
1. We are not interested in proposals that would evaluate
specific state reforms. The RWJF State Health Care
Access Reform and Evaluation (SHARE) initiative will
address state efforts. See www.statereformevaluation.org
for more details. |
