Three Initiatives to Reduce Costs and Increase Health Care Efficiencies

Yamamoto,_Dale_2006 Two major objectives underlying all current health care reform proposals are to reduce health care costs and to improve the quality of health care delivery. In my recent essay, part of the Society of Actuaries’ new essay collection on health care reform, I touched upon this health care efficiencies topic. There are three potential initiatives that may be undertaken by the government and the private sector:

  • Common provider fees
  • National data warehouse
  • Physician council

These initiatives assume the creation of something similar to a National Health Board described in Tom Daschle’s book, Critical: What We Can Do About the Health-Care Crisis. This will to help provide input and organization on the health care reform work to be done.

Common Provider Fees

All of the major health plans spend a lot of time contracting with physicians, laboratories and hospitals for their network programs. Ten years ago, there were marked differences in these contracts between the major plans. Today, these differences have narrowed significantly so that many experts consider them a tie in many cases.

The first initiative is to create one common contract between all health plans and providers. To accomplish this, a national group comprised of government personnel and knowledgeable provider contractors from the health plans will set national guidelines. Regional contracting groups will be entirely made up of current health plan contractors and will do the local contracting under national guidelines.

This initiative will, in the long run, save administrative costs for both health plans and providers. Health plans will likely only need a handful of people in this area to act as liaisons with the new contracting entity. Today, physician offices spend an inordinate amount of time on administrative negotiations with health plans on fee payment levels. Under this initiative, providers will deal with one contractor and their fees will be the same for all health plans.

Next steps for this type of arrangement include pay-for-performance and other quality improvement initiatives that will be easier to implement on a national basis with a common contracting mechanism.

National Data Warehouse

The Holy Grail of health care is defining quality. And, a key to better understanding quality health care delivery is through health claims and utilization data. All health plans independently attempt to develop quality metrics, but in many communities of the country, they do not have the needed volume of data to calculate statistically significant results. Pooling all claims data together will allow more robust analysis and hasten the establishment of quality criteria for providers. This type of quality analysis needs to be valuable to both payers and consumers. For payers, quality analysis helps them potentially understand payment mechanisms, quality providers, regional differences and medical management techniques. For consumers, there is a better understanding of practice and potentially cost differences of providers. So, the primary purpose for creating a national data warehouse will be to develop key quality measures that all parties can agree on. This, in turn, could be communicated to the general population.

Agreements of data sharing will need to be negotiated among the health plans, and limitations of the data need to be recognized. Staffing of the analysis needs to come from the health plans and the medical community—not academia. Researchers will need a strong practical background in order to understand the key drivers of health care costs and quality.

Physician Council

A byproduct of the data warehouse will be the reporting of medical procedures. Analysis of data will assist a panel of physicians in identifying “low hanging fruit” of commonly done procedures that have a large variation in cost by community. After identifying a number of these procedures, a better understanding of the reason for the variations will be conducted. Targeted communication will be made to the profession, for procedures where there are clear best practices that could reduce the variation.

As the medical practice evolves, these best practices need to change to match new technologies so these new guidelines will be constantly reviewed. In addition, new best practices will continuously be added to the guidelines. Guidelines should be flexible enough to continue to allow professional judgment of physicians in the treatment of their patients.

The physician council itself will be made up of practicing physicians. These participants will not hold permanent positions. Regional councils are needed to account for regional differences in practices and to promote physician cooperation. The regional councils will allow a process for local physicians to get counsel and to gain input into the national council.

The creation of the guidelines will better assure good quality health care delivery throughout the country. These will provide a means to more efficiently spread new technologies developed in one community to other communities.


These three initiatives will create a foundation for health care reform. The timeframe for fully evolving these measurements will take some time, but five years is a very reasonable expectation to create meaningful metrics. Finally, the creation of the physician council will provide a more efficient means to communicate best practices for more procedures.

Dale H. Yamamoto, FSA, FCA, MAAA is an independent consultant with his own firm, Red Quill Consulting, in Barrington, IL. He has testified before Congress on the topic of health care reform and Medicare and has delivered speeches at a number of professional actuarial and industry meetings.  A former Vice President of the Society of Actuaries’ Board of Governors, Dale has published several articles on the subject of group benefits.

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9 replies »

  1. The first physician council was formed in the 1910’s; the JCAHO is the body that has evolved from it. It is part of the problem.
    Costs are driven by demand first and charges and practice patterms second. There are too many people looking to healthcare to solve their nonmedical problems.

  2. I have to thank you for the efforts you’ve put
    in penning this site. I’m hoping to see the same high-grade content by you in the future as well.
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  3. My name is Anup Desai and I’m working with ICHNA, a company helping self-insured companies & plans bring down their health care costs. We plan on providing free
    services using federal monies allocated by the Obama Administration via the American Recovery and Re-investment Act. Unfortunately, no VP of benefits or CEO seems interested in such a partnership. Wondering what could be the cause for lack of interest. I would very much appreciate your input!

  4. People are catching on to this scam. I believe there are millions of people against this health care monstrosity. We are only told what appeases those who refuse accountability. Cut taxes, creating wealth so we can get back to work, only then revamp health care. It is my opinion our leaders are exploiting the economy not to enrich us. Write to Congress. Save our Country. (DO NOT APPROVE THE HEALTH PLAN).

  5. People never seem to learn from their mistakes. I am sick of this country rewarding immorality and lack of personal accountability. If we continue taking this undue punishment and duress we may as well all hang up our hats and quit going to work because whether we like it or not, we are enslaved to an administration of traitors. The day has come to stand up to them. It is time to take back our country. Reach out to your senators and representatives today. It’s easy to do a web search for their names. Sites are available listing each and every Congress Member’s phone number and email address. Prove your patriotism and do it now if you have one shred of appreciation for this nation’s freedoms and all our forefathers have done for us. It takes a few minutes to make your voice heard. God bless you all. May he bind us together in this fight for our freedoms and the future of American generations to come.

  6. Dale-
    YES-“The Holy Grail of health care is defining quality”
    The very well kept secret is,however,that health does not have much to do with the enterprise of medicine which has been proven by many.
    So we have been both duped and swindled into believing otherwise.
    But a $2.5 billion dollar scam is hard to reverse.
    Some people though are catching on.
    Dr. Rick Lippin

  7. The first physician council was formed in the 1910’s; the JCAHO is the body that has evolved from it. It is part of the problem.
    Costs are driven by demand first and charges and practice patterms second. There are too many people looking to healthcare to solve their nonmedical problems. They have aches and pains and, therefore, need an MRI.
    A unifrom fee schedule sounds great. I have always felt the geographic component of the Medicare fee formula was unequal protection. Just because a hospital is in Malibu does not mean they should be paid more than a hospital in eastern North Carolina.

  8. Dale,
    I would think that one of the biggest cost driver is the ethics as you may recall illustrated in the articles by Dr. Gawande. I talk about that too.
    National database on paper is a great idea. It has its own challenges. I am not sure though it will reduce cost…The new diagnostic equipments are supposed to do the same – improve cost and quality and it is exactly opposite of what we got. In a cummulative fashion, hence I am skeptic of the outcome. However, I beleive if done properly, it will do what you are saying.
    Common provider fee etc, are a distraction from addressing the serious problem while I accept all these have impact. The question is if it is worth or significant enough to warrant discussion in the current extent of crisis.