Factors Contributing to Dramatic Growth in Health Care Spending

The health care spending in the United States has increased over the last five decades with a major impact on various aspects of the American economy. The health care spending growth and trajectory is a key factor in the state and federal budgets and the pay that Americans are left with after paying for health services. The increase has been sharp since 1960 from 5% of GDP to more than 17% by 2014 (Sheiner, 2014). Researchers have investigated some of the factors that have led to the increase in spending, including income growth, the health care’s relative price, reforms in insurance coverage, and demographics, such as an increase in the aging population. However, research using household-level estimates revealed the possible contribution of another factor, technological changes. Changes in technology have improved health care, but also made it complicated and increased the cost.

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The models of payment for health services have led to an increase in spending. Health consumers pay health care providers in ways that encourage them to do more rather than efficiently provide necessary services. Many insurers in the country, including conventional Medicare, pay hospitals, and other care providers use a fee-for-service system, reimbursing for each visit, test, or procedure (Sheiner, 2014). Another factor behind the increase is demographics, including the aging population, and an increase in chronic illnesses, such as diabetes and obesity. The changes increase the demand for care and spending. Besides, the health care system requires new drugs, technologies, procedures, and services that enhance the spending on health. Although medical advances are important to improve services, prevent diseases, and delay death, they increase spending. Regardless of the improvement in technology, patients still lack adequate information to make the decision on the best medical care (Mack, 2016). Therefore, service providers advise on the type of service to receive, which leaves room to provide overrated ineffective services. Besides, care providers and hospitals have gained market share and became capable of demanding higher prices.

The Effect of Health Care Payment and Delivery Models

While the increase in health care spending has increased over the last 50 years, healthcare systems face the challenge of ensuring accountability. McClellan et al. (2017) reveal that the way consumers pay for care affects the delivery and quality of care given to patients. The fee-for-service (FFS) is a traditional payment system that has been used in the United States in which people pay for services rendered. People pay for services individually or in aggregate based on the volume of services provided. Recent payment reforms are emphasizing on value-based models payment and care delivery models. They aim at reducing the cost of health care services, increasing medical efficiency, encouraging collaboration, and coordination in care delivery, meeting the needs of patients, and ensuring accountability (Burwell, 2015). The models aim at incentivizing care providers to focus on the health and wellbeing of their patients by providing cost-effective, evidence-based medical interventions.

The most important reforms in the recent past are contained in the Affordable Care Act, which requires accountability from health care providers and insurers. For example, the Center for Medicare and Medicaid Innovation (CMMI or “Innovation Center”) was created within the Centers for Medicare and Medicaid Services (CMS) with the aim of identifying, developing, assessing, supporting, and spreading innovative payment and delivery models that target at curtailing increase in the cost of care while maintaining accountability (Abrams, Nuzum, Zezza, Ryan, Kiszla, & Guterman, 2015). It is worth noting that the reform was meant to lower health spending under Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), and at the same time improve or maintain quality of care provided (McClellan et al., 2017). The reforms prioritize care coordination, efficiency, safety, and quality of care.

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Recommendations of the most Promising Approaches for Constraining Cost Growth

The healthcare system in the united states faces the challenge of curtailing the high rate of spending while improving or maintaining quality of care. Significant efforts to control spending might compromise quality. Therefore, it is important to define an effective model to achieve the objective to address both cost and quality issue. Profiling and practice guidelines can be effectively used towards the end of reducing spending while providing a high quality of care. The guidelines should be used alongside financial incentives to assist care providers, patients, and payers to cut down the rate of spending while avoiding compromising the quality of care (Muennig & Bounthavong, 2016). Profiling and practice guidelines are necessary efforts to solve the cost problem that has persisted for five decades.

Three recommendations emerge in research to curtail spending while maintaining the quality of care. Firstly, health care providers, including physicians, health care organizations, payers, and the public should have access to reliable and accurate information regarding practice and care, the cost, service usage, and outcome. The information is useful in making important decisions such as to avoid costly avoidable services. Secondly, the stakeholders require reliable and accurate information that make it possible to differentiate appropriate from inappropriate care strategies to care. For example, the information is necessary to design and implement clear standards for the review of usage. Patients and providers should have appropriate data to react to financial incentives and avoid wrong decisions that might compromise quality. Finally, the healthcare system should implement effective incentives and infrastructure necessary to support the reform efforts. They need an information infrastructure aimed at collecting and analyzing data about the process, cost, and outcomes of care (Muennig & Bounthavong, 2016). For example, payment policies, including relative price and covered services by insurers, should support the objective of limiting unsuitable services while motivating provision of necessary and cost-effective care.

Limitations or Open Questions that Accompany New Reimbursement and Delivery Models

Various limitations and questions emerge any time there is a new reimbursement and delivery model intended to promote accountable care. One of the limitation and question relate to the possibility of affecting the quality of care. Physicians and patients might be concerned that the new change might lower the cost, but instead deteriorate the quality of services. Another limitation is the possibility of resistance from the different stakeholder groups (Rajkumar, Conway, & Tavenner, 2014). For example, physicians might counter the reforms for the concern that they might affect the quality of care they provide to their patients. Insurers might lack financial incentive to provide necessary coverage because of the reduced cost of premiums. Patients might be concerned about the quality of services they access from health care providers. Regardless of the questions, reforms are essential in the United States to address the persistent issue of increasing health spending.

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