Though Governor Patrick yesterday signed into law a healthcare cost reduction bill, the issue remains central at the federal level. Healthcare costs are the primary driver of budget deficits, so getting them under control is critical to getting the nation’s fiscal house in order. How do we do it? And will Massachusetts’ effort work?

The Center for American Progress, a liberal think tank, recently convened an array of health policy experts of varying perspectives who collectively published 11 recommendations in the New England Journal of Medicine that provide a starting point for conversation. Here they are:

PROMOTE PAYMENT RATES WITHIN GLOBAL TARGETS

Under our current fragmented payment system, providers can shift costs from public payers to private payers and from large insurers to small insurers.5 Since each provider negotiates payment rates with multiple insurers, administrative costs are excessive.

Translation: How much Medicaid has to pay for a particular service can be different from how much your insurer has to pay. The recommendation is to let all insurers negotiate the price with providers together. The providers compete to offer the best price, but that price has to be the same for all insurers. The experts further recommend spending targets, something the Mass. bill implemented.

ACCELERATE USE OF ALTERNATIVES TO FEE-FOR-SERVICE PAYMENT

Instead of paying a fee for each service, payers could pay a fixed amount to physicians and hospitals for a bundle of services (bundled payments) or for all the care that a patient needs (global payments).

The Mass. bill also attempted to do this, with a variety of incentives to speed the transition away from fee for service. The NEJM recommendations include ways that Medicare could aid in this as well.

USE COMPETITIVE BIDDING FOR ALL COMMODITIES

Evidence suggests that prices for many products, such as medical equipment and devices, are excessive.9 Instead of the government setting prices, market forces should be used to allow manufacturers and suppliers to compete to offer the lowest price. In 2011, such competitive bidding reduced Medicare spending on medical equipment such as wheelchairs by more than 42%.10 The ACA requires Medicare to expand competitive bidding for equipment, prosthetics, orthotics, and supplies to all regions by 2016.11

This should be a no-brainer. We know price-setting is a lousy idea. And just because healthcare is a government-dominated industry (for good reason) doesn’t mean that we can’t harness the power of competition.

REQUIRE EXCHANGES TO OFFER TIERED PRODUCTS

The market dominance of select providers often drives substantial price variation.14 To address this problem, insurers can offer tiered plans. These insurance products designate a high-value tier of providers with high quality and low costs and reduce cost sharing for patients who obtain services from these providers. For instance, in Massachusetts, one tiered product lowers copayments by as much as $1,000 if patients choose from 53 high-value providers.15

Tiered plans are basically plans where you pay less in order to have access to a subset of health providers that the insurer deems to be a good value. Here again, Mass. is already doing this.

REQUIRE ALL EXCHANGES TO BE ACTIVE PURCHASERS

If exchanges passively offer any insurance product that meets minimal standards, an important opportunity will be lost. As soon as reliable quality-reporting systems exist and exchanges achieve adequate scale, it is critical that federal and state exchanges engage in active purchasing — leveraging their bargaining power to secure the best premium rates and promote reforms in payment and delivery systems.

Exchanges are the regulated health insurance markets set up by the federal health reform legislation. The idea here is to have the exchanges not be just lists of insurance plans, but active arbiters of what plans are offered. I can’t really speak to the wisdom of this one.

SIMPLIFY ADMINISTRATIVE SYSTEMS FOR ALL PAYERS AND PROVIDERS

First, we suggest that payers and providers electronically exchange eligibility, claims, and other administrative information as soon as possible. Second, public and private payers and providers should use a single, standardized physician credentialing system. Currently, physicians must submit their credentials to multiple payers and hospitals. Third, payers should provide monthly explanation-of-benefits statements electronically but allow patients to opt for paper statements. Fourth, electronic health records should integrate clinical and administrative functions — such as billing, prior authorization, and payments — over the next 5 years. For instance, ordering a clinical service for a patient could automatically bill the payer in one step.

As always, easier said than done, but electronic health records and similar efforts to streamline the process are pretty widely supported.

REQUIRE FULL TRANSPARENCY OF PRICES

Prices for the same services vary substantially within the same geographic area.14 Yet consumers almost never receive price information before treatment. Price transparency would allow consumers to plan ahead and choose lower-cost providers, which may lead high-cost providers to lower prices. Although price transparency could facilitate collusion, this risk could be addressed through aggressive enforcement of antitrust laws.

Another no-brainer. Healthcare is an imperfect market, but it can still benefit from transparency that will help consumers make better choices. There’s enough informational asymmetry in this space; price doesn’t have to be part of it.

MAKE BETTER USE OF NONPHYSICIAN PROVIDERS

Restrictive state scope-of-practice laws prevent nonphysician providers from practicing to the full extent of their training. For instance, 34 states do not allow advanced-practice nurses to practice without physician supervision.

The bill that Patrick signed yesterday took steps in this direction.

EXPAND THE MEDICARE BAN ON PHYSICIAN SELF-REFERRALS

Many studies show that when physicians self-refer patients to facilities in which they have a financial interest, especially for imaging and pathology services, they drive up costs and may adversely affect the quality of care…

…We believe that the Stark law should be expanded to prohibit physician self-referrals for services that are paid for by private insurers.

LEVERAGE THE FEDERAL EMPLOYEES PROGRAM TO DRIVE REFORM

The Federal Employees Health Benefits Program (FEHBP) provides private health insurance to 8 million federal employees and their families. Although the FEHBP has encouraged various reforms to improve the quality of care,27 it could be much more innovative.

Used properly, the government can be a force for innovation here.

REDUCE THE COSTS OF DEFENSIVE MEDICINE

More than 75% of physicians — and virtually all physicians in high-risk specialties — face a malpractice claim over the course of their career.

While this isn’t as big a factor as is often claimed, it’s quite real. Luckily, the recent Mass. bill took steps here too.

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All in all, it’s hard to look at this list without being struck by how far ahead of the curve our state is. Now if only the nation could catch up.

Want to know more? Check out this set of charts we put together a while back on the healthcare costs issue: