More For Your Money: How The Oregon Health Fund Board's Draft Health Reform Plan Reins In Skyrocketing Health Care Costs

2008-09-30

Executive Summary

Oregon businesses and consumers are facing unsustainable increases health insurance premiums and out-of-pocket costs, with health care costs rising at more than double the rate of inflation.

Given this, Oregon officials are developing a major health reform plan to cut costs, improve health outcomes, and ensure Oregonians have access to affordable quality health care.

The officials charged with this task, the Oregon Health Fund Board, released a draft reform plan for public comment in early September 2008. The Board will release a final proposal in November, and the Oregon Legislature is expected to consider it in the 2009 session.

Key Findings

• The Oregon Health Fund Board's draft plan's consumer-friendly cost containment provisions have the potential to cut health care costs an estimated $5.4 billion over ten years.

• Strengthening the plan's provisions to cut waste, improve smart use of technology, boost purchasing power and watchdog insurance and hospital rates would result in even greater savings, helping further stabilize costs for businesses, taxpayers and consumers.

• The draft plan proposes cutting costs – not by cutting care – but through three consumer-friendly strategies: cutting waste in the health care system, boosting Oregon consumers' and taxpayers' ability to leverage purchasing power to negotiate better deals, and by strengthening the state's role to watchdog excessive health care costs:

Cutting Waste: Consumer-friendly Cost Containment

One key area where Oregon can cut health care costs is through cost control methods that maintain or even improve the quality of care. This type of cost-containment systematically cuts waste, makes smart use of new technology and clinical models, and uses prevention to keep people healthy.

Cutting Drug Costs – Require health plans purchased with public dollars to use the Oregon drug purchasing pool unless the health plan got a better deal on prescription drugs.
Estimated potential savings: $1.6-6.3 million in 2009 and $24-95 million over 10 years.
Quality impact: Neutral

Administrative Simplification – Develop and require standard electronic formats for eligibility, claims, payments, etc.
Estimated potential savings: $400 million over 10 years.
Quality impact: Neutral

The Best Primary Care, an "Integrated Health Home" – Shift to this proven method of care where teams of health providers center care on each patient, focusing on prevention, early detection and disease management methods.
Estimated potential savings: $50 million in the first year and $2.5 billion over 10 years*
Quality impact: Quality improves

Health Information Technology – Help health providers more quickly incorporate the best health information technology into their practices, and use the technology to deliver better care and communicate information to other providers caring for the same patient. Doing so would increase short-term health care spending in Oregon, but result in net savings in the long term.
Estimated potential savings: $990 million over 10 years*
Quality impact: Quality improves
Estimated potential savings if health IT achieves widespread use: $1 billion per year in 12 years.

Keeping Healthy to Prevent Disease – Invest in proven programs to cut smoking and obesity.
Estimated potential savings: $32 million in the first year and $1.7 billion over 10 years.
Quality impact: Health outcomes improve

Unifying Consumer and Taxpayer Purchasing Power

In addition to initiatives to directly reform the health care system, the Board's plan recommends harnessing market forces to reduce costs. The plan proposes methods to help purchasers of health care and health insurance negotiate better prices, and to drive out waste and improve quality in the health care system. The plan proposes to do this in two ways. First, it establishes a public employers health cooperative which would strengthen the purchasing power of state and local government entities to save taxpayer dollars. Second, it unifies the purchasing power of individuals, and potentially small businesses, through the Oregon Health Insurance Exchange, a purchasing pool designed to negotiate lower rates and better coverage. Ultimately, these purchasing pools could partner to create greater savings and choices through combined purchasing power.

Watchdog Insurance Administrative Rates

A third key area the Board includes in its draft plan is in the area of regulatory oversight. Aimed at eliminating excessive insurance administrative costs, the draft report recommends the Legislature authorize the Insurance Division to develop standards for reviewing the administrative portion of health insurance rates.
Estimated potential savings: $735 million over 10 years
Impact on quality: Neutral

The draft report also recommends an appropriate agency be charged with setting ceilings on the rates charged by hospitals and other providers.

Recommendations

OSPIRG recommends the cost containment elements in the Oregon Health Fund Board's final proposal to the 2009 Legislature be strengthened in the following ways to further boost savings:

Cut Waste – Consumer Friendly Cost Containment

• The plan gives people with state-sponsored coverage access to an Integrated Health Home, the patient-centered primary care model proven to cut costs while improving health outcomes. OSPIRG recommends all Oregonians have access to this model of care.

• The plan accelerates usage of health information technology. OSPIRG recommends Oregon set the strongest possible standards for privacy and security to protect patients. The shift to electronic records and networks should be made to result in improved privacy and security over today's paper systems.

• The plan requires publicly-sponsored health plan to use Oregon's drug purchasing pool (OPDP) for prescription drugs unless the health plan can obtain better prices for consumers using an alternative method. OSPIRG recommends health plans meet this standard across the board.

• The plan establishes the new Oregon Health Authority, in part to continue the job of identifying waste in the system. OSPIRG recommends the Authority also be given the duty to eliminate the waste it identifies. We also recommend the plan direct the Authority to develop rules cutting health care advertising and marketing expenses if they are wasteful and do not result in improved access or quality of care, and to prevent duplicative capital projects through coordinated local planning.

Unify Purchasing Power

• OSPIRG recommends that in addition to individuals, small businesses be allowed to use the Exchange, the new purchasing pool to negotiate lower health care rates.

Watchdog Health Care Rates

• The plan recommends the Legislature authorize the Insurance Division to rein in insurance administrative rates exceeding inflation. OSPIRG recommends Insurance Division be more specifically directed to evaluate health insurance administrative costs, and deny unnecessary increases in administrative costs higher than the rate of inflation.

* Note: Estimated savings due to health information technology and integrated health homes should not be added together to obtain a total savings number. Both result in improved use of evidence-based care which reduces costs, and effectiveness of each depends on implementation of the other.