New studies search for health cost savings that preserve quality and access

In its June 2014 issue, “Economics of Health Care: Costs, Savings & Value,” the policy journal Health Affairs examines the potential to rein in spending while simultaneously ensuring access and quality, with a particular focus on Medicare and Medicaid.

Researchers from the University of Michigan analyzed two drugs covered by Medicare to treat macular diseases. In government-funded trials, both drugs showed similar effectiveness in treating one cause of blindness, and continuing trials are testing them head-to-head for a second disease. The drug with FDA approval for treating both diseases could be slightly safer but costs 40 times more than the other – which is currently used off-label. Researchers found that switching to the less expensive, similarly effective drug (called a “biosimilar”) could result in a total savings of $29 billion over the course of ten years. As for why Medicare has not made the switch, the authors point to barriers related to the drugs’ manufacturer (which makes both of the drugs and has little financial incentive to submit the less expensive drug for FDA approval) and unclear regulatory guidance on the FDA approval process for biosimilars.

In another study, University of Pittsburgh researchers proposed a change in the way Medicare patients are assigned Part D plans that could have saved $5 billion in federal government spending in 2009. Under current policy, most Part D enrollees who receive low-income subsidies are randomly assigned to plans. This random assignment can lead to higher out-of-pocket spending by beneficiaries (if they are not placed in the best plan for their needs) and also higher spending by the government to subsidize copayments for low-income enrollees.

As an alternative to random plan assignment, the study models how “intelligent reassignment” – assigning enrollees to the least expensive plan available to them based on their prescription use – could save patients and the government money, and possibly also lead to better health outcomes.

“We found that such a reassignment approach could have saved the federal government over $5 billion in 2009, for mean government savings of $710 (median: $368) per enrollee with a low-income subsidy. Implementing that simple change to reassign beneficiaries would have also lowered the proportion of prescriptions that required utilization review from 29 percent to 20 percent, and the proportion of prescriptions with quantity limits from 27 percent to 19 percent.”

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Yuting Zhang and colleagues, Health Affairs

In a third study, Stanford University researchers set out to understand what drives variations in Medicare costs. Regional differences in Medicare spending are well documented, particularly by Dartmouth researchers who have found that high-spending areas do not necessarily have better health outcomes. The Stanford researchers surveyed Medicare patients in various geographic regions to assess the cost impact of patients’ preferences (e.g. for more or less aggressive treatment), relative to other potential cost drivers, such as supply factors (e.g. the number of physicians per capita).

“Relative to supply factors, health, and income, patients’ preferences explained the largest share of variation in end-of-life spending and the smallest share of variation in spending on physician services.”

Laurence Baker and colleagues, Health Affairs

Overall, patients’ preferences accounted for a relatively small portion (5%) of variation across regions, while supply factors accounted for 23% of variation and patient health and income 12%.

The Peterson Center on Healthcare and KFF are partnering to monitor how well the U.S. healthcare system is performing in terms of quality and cost.

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