Price controls and increased primary care lower healthcare spending, according to new study

BOSTON – The U.S. health care system is the most expensive in the world, with spending projected to rise by more than five percent each year through 2026, according to the Centers for Medicare and Medicaid Services. What can be done to turn the tide?   

Rhode Island may have a solution. Researchers from Ariadne Labs, Stanford University, and Harvard Medical School released a new report showing that state-imposed hospital price controls combined with increased spending on primary care slowed health care spending. Moreover, these controls did not impact health care quality. In some cases, quality had improved in the state.         

“The unfortunate reality in high-income countries like the U.S., is that it’s really difficult to reduce health care costs,” says Dr. Asaf Bitton, co-author of the study “Health Care Spending Slowed After Rhode Island Applied Affordability Standards to Commercial Insurers” published in the February 2019 edition of Health Affairs. Bitton is also director of Ariadne’s Primary Health Care Initiative. “Whenever we see something that under robust testing appears to reduce cost growth but can keep quality the same or better, that’s a big win. When you do it in a region or a state over a period of time, that’s an even bigger win.”  

The study examined a set of affordability standards implemented by Rhode Island’s Office of the Health Insurance Commissioner in 2010. First of its kind in the U.S. at the time, these standards set price controls between the state’s commercial insurers and its hospitals and clinics. These include caps on annual growth of hospital-related costs and transitioning from “per diem” to diagnosis-related payments, where insurers pay a fixed fee for a given type of diagnosis, regardless of how long a patient received care. Researchers analyzed health insurance claims of 38,000 commercially insured Rhode Island adults from 2007 to 2016, before and after the standards took effect. When comparing insurer payouts of this group with the payouts of a matched group of 38,000 insured adults from other states, total spending among the Rhode Island group saw a decline of about eight percent.

Notably, the state’s standards also required insurers to increase spending on primary care services by one percent annually for five years without raising consumer premiums. The funds were used in part to hire care managers, who ensure a patient’s health needs are met after a hospital stay and develop personalized care for high-risk groups, among other roles. The state also established a health information exchange, which digitally links patient health information across providers.

Rebalancing spending toward more proactive, primary care measures can lead to financial wins, says Bitton. “We know from experience that health systems that spend more on primary care have better outcomes,” he says. “Spending money in hospitals is a very reactive way of spending. While obviously critical, hospitals are very expensive and can be inefficient. A dollar spent on primary care is often a better value for health than a dollar spent in the hospital in the long-term.”

By combining price control measures with requirements to increase funding for primary care, the report concludes that this redistribution toward increased primary spending occurred without net total spending losses to payers. More money was saved by decreased hospital spending than was spent on increased primary care services. Notably, the reduction in spending was mainly due to the hospital price caps, not reduced utilization of services. The measures also didn’t negatively impact patient care.

Since Rhode Island’s regulations went into effect, Bitton says other states have been exploring similar approaches to slowing health care spending. “It appears that by rebalancing spending toward primary care in concert with capping annual hospital price growth … Rhode Island had the opportunity over time to reduce costs and to provide resources to build systems that better care for its population,” says Bitton. “This is a powerful model for other states to consider.”

The new study is part of a new focus by Ariadne’s Primary Health Care program to produce innovative research and interventions to improve U.S. primary care practice and payment policy. “We are going to be working with an array implementation partners, systems, payers, and providers who want to get serious about rebalancing resources toward better primary care models,” says Bitton.

Read the complete study by visiting the Health Affairs website.

This study was authored by Aaron Baum, assistant professor of health system design and global health and an economist at the Arnhold Institute for Global Health at the Mt. Sinai School of Medicine; Zirui Song, assistant professor of health care policy and medicine in the department of health care policy and faculty member at the Center for Primary Care at Harvard Medical School; Bruce E. Landon, professor in the departments of Health Care Policy and of Medicine and faculty member at Harvard’s Center for Primary Care; Russell S. Phillips, director of the Center for Primary Care and professor in the Division of General Medicine and Primary Care at Beth Israel Deaconess Medical Center; Asaf Bitton, director of Ariadne’s Primary Health Care Initiative and assistant professor of medicine and health care policy at Harvard Medical School; and Sanjay Basu, assistant professor at the Center for Primary Care and Outcomes Research and the Center for Population Health Sciences, both in the Department of Medicine, Stanford University School of Medicine.


–By Fred Durso, Jr.