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Health Care Affordability

A new statewide initiative

By Matthew Anderson, JD, AND Sheila Kiscaden

At the same time, physicians, hospitals and clinics confront mounting pressures driving their costs of care delivery higher: workforce shortages and rising labor costs, increasing administrative complexity, growing prices for supplies and persistent payment pressures from insurers and public programs.

These realities often produce an unfortunate dynamic. Discussions about affordability too often devolve into calls for reducing reimbursement for services. At the same time, discussions about sustaining physician practices and access to care often sound like capitulating to ever-rising health care costs. Neither perspective adequately captures the complexity and intertwined mechanics driving affordability concerns in today's health care system.

A Legislative Response

Seeking more thoughtful, data-informed, ongoing policy analysis and development, the Minnesota Legislature recently established the new Center for Health Care Affordability within the Minnesota Department of Health (MDH). The Legislature saw the benefits of a center with a long-term commitment to thorough consideration of policy options and solutions.

The center’s mission is to serve as the state’s primary resource for understanding why health care spending continues to grow, how affordability (and unaffordability) of care affects Minnesotans and which policy approaches and reforms are most likely to improve affordability — both for individual Minnesotans and the health system as a whole — while preserving or improving access and quality. The center’s mission is not to regulate physician practice or dictate payment policy.

Physician participation will be essential.

In launching the center, MDH convened two task forces to advise it in directing the initial work. First, the Health Care Affordability Advisory Task Force (HCAATF), consisting of Minnesotans representing those who pay for care — patients and their families, employers and other purchasers and stakeholders — as well as health policy experts. This task force’s objective is to review state and national data on health care cost and consider utilization trends, reliable research and studies, cost containment efforts in other states and the experiences of Minnesotans impacted by high and rising health care costs. With this context and background, the task force offers recommendations to the center and MDH for developing actionable policy changes designed to help reduce the financial strain of health care costs on individual Minnesotans and our state’s health care system as a whole.

Recognizing that the task force’s recommendations would benefit from greater subject matter expertise of leaders from organizations directly responsible for financing, delivering and coordinating care for our population, MDH also convened a Provider and Payer Advisory Task Force (PPATF). This group’s members, including several physicians, have experience in health care delivery systems, independent clinical practices, rural health care, pharmaceutical financing and delivery, health insurance and other related fields. They offer a different level of perspectives and analysis of the topics the HCAATF discusses and provide valuable advice to shape the HCAATF’s eventual recommendations.

As co-chairs of the Health Care Affordability Advisory Task Force, we are fortunate to work with thoughtful and committed members of both task forces. Recently, the HCAATF submitted a letter to Minnesota’s Commissioner of Health, Brooke Cunningham, MD, based on our first synthesis of information and data from health policy research, perspectives of our members, feedback from community conversations with patient and consumer advocates and input from our partners on the PPATF. While our work continues, the letter outlined our initial recommendations to date.

More specifically, we suggested five policy priorities or topic areas to guide the center’s initial research and policy development efforts. These five priorities offer an early glimpse into how Minnesota may seek to improve health care affordability over the coming years and why we hope physicians across the state will be part of the conversation.

Asking the Right Questions

One of the first observations the HCAATF reached was that Minnesota lacks a shared definition and common understanding of what "health care affordability" means.

Most people recognize that health care is expensive and, too often, unaffordable. Yet we lack commonly accepted benchmarks for determining what constitutes affordable health care for individual households or for the state’s health care system as a whole.

The center uses two "north stars" to guide its work: slowing the rate of growth of total health care spending in Minnesota while maintaining or improving our residents’ health outcomes, and reducing the number of Minnesotans who delay or forgo needed care because of cost. Those objectives are intentionally broad and reflect an important thread that runs throughout our task force’s work: efforts to improve affordability must account for our community’s values with respect to quality and access.

The task force recommends that the center develop affordability benchmarks or standards, such as defining what constitutes an “affordable” rate of growth in statewide health care spending and what proportion of household income should reasonably be devoted to health care.

Of course, we expect that benchmarks or standards may not apply uniformly or may need to vary based on household characteristics. For example, what might constitute an affordable portion of income going to health care for a household at the higher end of the socio-economic scale might be wholly unaffordable for a household on the lower end of the scale. Similarly, what is affordable at the household level might vary based on disease burden, social or geographical context or any number of factors that might call for relying on a measure of affordability that is more variable.

At this stage in our work we are not presupposing which affordability standards or guides the center should adopt, but rather encouraging it to consider similar standards used in other states, available research and input from subject matter experts and the diverse experiences of Minnesotans trying to balance their financial resources with their health care needs. 

The task force believes evidence and research informed affordability benchmarks, at both the overall system level and the individual household level, will provide a common framework for the center, Minnesota’ s policymakers and the public to use when evaluating progress over time and assessing various policy proposals.

Why These Five Priorities?

Every meeting of the task force reinforced the truism that there is no single cause of rising health care costs, and there will be no single solution.

Health care spending reflects demographic changes, technological innovation, pharmaceutical pricing and distribution chains, workforce shortages, insurance design, administrative complexity and waste, misaligned payment systems and incentives, market consolidation and fragmentation, profit-taking by intermediaries without corresponding improvements in outcomes or patient experience and many, many other factors. Any serious affordability strategy must acknowledge that complexity without conceding to it.

After several months of discussion and review of state and national data, trends and research, the task force identified five areas where the center’s additional research and policy development appear most likely to improve affordability. They are:

Minnesota lacks a shared definition and common understanding of what "health care affordability" means.

High and Variable Prices and Price Growth Commercial health care prices vary substantially across Minnesota and even within a single clinic or hospital, and often without corresponding differences in quality or patient outcomes. Understanding why those differences exist and, more important, when they reflect legitimate differences in cost or performance versus market dynamics or negotiating leverage is one of the center's highest priorities. Minnesota’s All-Payer Claims Database and existing analytic resources provide an unusually strong foundation for answering those questions and developing evidence-informed policy recommendations.

Examining Market Consolidation Minnesota's health care marketplace has experienced substantial horizontal and vertical consolidation over the past two decades. Hospitals have merged, physician practices have joined larger systems, insurers have consolidated and increasingly complex organizations now combine provider, insurance and administrative functions.

Consolidation is not inherently good or bad. In some circumstances, for example, integration may preserve access to care that otherwise could not survive independently. At the same time, national evidence demonstrates that health care consolidation is correlated with increased market leverage and higher prices for services, and rarely produces improvements in quality or outcomes for patients.

The center will examine where consolidation benefits patients and communities, where it may reduce competition and whether Minnesota's existing oversight processes could be modified to produce better results for residents and communities.

Better Understanding Impacts of Private Equity and Investor-Driven Incentives Private equity investment in health care has generated considerable national attention, yet relatively little is known about its overall role in Minnesota’s health care system.

Investor-backed organizations now participate in physician practices, ambulatory surgery centers, behavioral health, dental care, dialysis services, hospice care, skilled nursing facilities and many other sectors of health care. Some investments bring needed capital, management expertise, innovation and operational improvements. Others have raised questions regarding incentives, price increases, higher total spending and long-term affects on patient care.

Rather than beginning with predetermined conclusions, the task force believes Minnesota needs a clearer understanding of the extent of investor involvement in our health care system, the incentives these ownership structures create and the benefits and risks they bring before considering if policy changes are warranted.

Looking Beyond Premium Increases For patients, affordability is more often experienced through monthly premiums, deductibles and other out-of-pocket expenses rather than directly from provider reimbursement rates.

Recent premium increases in Minnesota's individual and small-group insurance markets have intensified these concerns, and are emblematic of similar premium price pressures faced by employers. While insurers already undergo actuarial review, the task force believes Minnesota should also explore whether insurance market oversight can better address affordability by improving transparency into the factors driving premium growth and evaluating whether existing regulatory approaches adequately support long-term affordability of health insurance.

Following the Money in Prescription Drugs Prescription drugs are one of the fastest-growing components of health care spending, yet many aspects of pharmaceutical pricing and distribution are remarkably opaque.

Manufacturers, wholesalers, pharmacy benefit managers, pharmacies, insurers, employers and regulators all influence what patients ultimately pay for their medications. Financial relationships throughout the pharmacy chain are difficult for physicians, employers and even health plans themselves to fully understand, let alone influence.

The task force believes additional transparency and understanding should precede further regulation. Before recommending new policies, Minnesota should better understand where pharmaceutical spending growth occurs and why, how existing state and federal reforms are impacting drug pricing and spending and where greater accountability and regulatory limits may be needed.

What Isn't on the List

It is of interest that several topics commonly associated with affordability did not emerge among the task force's initial priorities.

The group did not begin with physician quality reporting, utilization management, value-based payment, prior authorization, scope of practice changes or physician performance incentives. Nor did it propose simple, across-the-board cuts to reimbursement rates.

That does not mean those topics lack importance or are not worth considering. Some might become areas of focus of future work for the center. But the task force concluded that Minnesota should first better understand broader market and regulatory forces that influence affordability before pursuing more targeted delivery-system reforms that might unintentionally threaten quality of or access to care, or financially benefit the bottom line for certain health care stakeholders without necessarily improving affordability for Minnesotans or lowering health care spending overall.

Why Physician Engagement Matters

The Center for Health Care Affordability is in its formative years. Its research and recommendations developed over the next 12 to 24 months may influence legislative discussions, regulatory proposals and broader policy conversations for years to come.

Physician participation will be essential. Physicians understand how high-quality care requires skilled professionals, modern facilities, advanced technology and sufficient resources to meet patients' changing needs. At the same time, physicians also witness the consequences of unaffordable care every day — patients delaying treatment, declining diagnostic testing or rationing medications because of cost.

Our recent statement of priorities is not a set of predetermined policy conclusions; it is an invitation to engage further in thoughtful, evidence-informed discussions about how Minnesota can deliver high-quality, accessible care while ensuring that our residents can afford to benefit from it.

Reasonable people will disagree about specific health policy solutions. That is both inevitable and healthy. But if Minnesota is to make meaningful progress on improving health care affordability, those conversations must include physicians.

The center's work is only beginning. We invite physicians to join in its efforts.

Matthew Anderson, JD, is a senior lecturer in the Health Policy and Management Division of the University of Minnesota’s School of Public Health. He is the Health Care Affordability Task Force Co-Chair. 

Sheila Kiscaden, is a former Minnesota State Senator and has served on numerous health care-related legislative initiatives. She is the Health Care Affordability Task Force Co-Chair.