Cost Containment

Introduction

My team members and I have been asked to consider the cost containment notion in regards to financing healthcare. After our research we were able to explain how three different groups have addressed cost control issues. The groups we researched were 1) The United States Government, 2) The Commercial Insurance Industry and 3) Healthcare Providers. After reviewing our research we were able to collaborate and explain what we believe will be the long-term impact of these cost-control efforts. A conclusion follows this explanation with our own thoughts and views.

Cost Containment

1) The United States Government:

One major concern for the retirees and employees who receive healthcare benefits through state and local governments is the increase in inflation. The challenge that the government faces, due to this inflation, is maintaining these benefits. It is essential for these people to be able to have more flexibility and the tools in order to save for retirement or to pay for healthcare cost. One of the most critical components of long-term planning and budgeting is cost containment which helps in maintaining the levels of the governments provisions (Government Finance Officers Association, 2004).

The government and information technology has proposed subsidies to aid in the efficiency of the healthcare system through support for developing and installing information technology which in turn helps improve coordination of patient care. The major concern with this is that there is an uncertainty of whether cost reduction can be achieved. According to The New England Journal of Medicine (2007), "Greater adherence to the practice of evidence-based medicine, additional research on the effectiveness of medical treatments, and greater assessment of technology before it is used outside research settings may all lead to gains in efficiency...."

2) The Commercial Insurance Industry:

Cost control in the commercial insurance industry is the exploration of the rules that govern corporate practice of medicine, the physicians, and patient relationships. One influence that has decreased cost containment attractiveness is the consumer's inconsistent demand. Here the structure of the tax laws are insured which encourages employers and employees to purchase group insurance which have lower deductibles with untaxed dollars. This first dollar coverage and access does not provide any incentives to innovate with coverage's that are less attractive. Another influence that has decreased cost containment is the possibility of entry deterring from the medical profession.

One way to get prompt response from the medical profession is outside interference. The concern here is that the continued existence of the insurer as a business entity can be threatened. A provider has more contact with the consumer-patient than the insurer does just for the simple fact that they are involved in the healthcare decisions. According to Duke Law (Vol. 1978, No. 2), "The consumer faced with a conflict between his provider and his insurance his resolution almost inevitably favors the provider." When insurance company's lower product cost it gives them a competitive advantage over the conventional insurance coverage's which are higher priced. If an insurer's cost control can be marketed effectively then they will gain financially.

3) Healthcare Providers:

The healthcare provider's power in the market is the explanation of why we have high and rising healthcare costs. They have some strategies they use to control costs that help reduce prices and quantities of services. One way is by limiting the supply of resources which in turn reduce quantity and therefore cost. Another way in which some have done already is shifting the financial risk from the insurer to the provider such as Medicare. With Medicare they have capitation reimbursement and payments based on diagnosis-related-groups which can also effectively contain cost. This approach is common in managed care but highly unpopular.

A lot of times resources do not get used as often as they should for the price. Limiting some of the rarely used resources will save some money which in turn will reduce cost to use these resources. Capitation reimbursement is a payment that is determined by a per member per month (pmpm) calculation in which a physician is paid a set dollar amount and these services are delivered to a specified group of people. These set dollar amounts can reduce cost all around. Health

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