Health care spending has risen to over 16% of the US gross domestic product and is projected to grow to more than 19% by 2019. Some 22% of middle-income Americans with private health insurance spend more than 10% of their household income on health care. The current and future cost of health care is one of the most pressing economic concerns of our time. How can costs be controlled or reduced while maintaining quality?

HCP faculty member Michael E. Chernew, PhD, is tackling this problem from multiple angles—evaluating new reimbursement models designed to reduce spending, building a deeper understanding of factors that affect health care spending, and advising high-profile health care policy organizations. His work encompasses both private insurance and Medicare.

Innovative payment options

It could be considered the grail in current health care policy research to find new and effective ways to control spending and improve quality. Chernew is investigating multiple approaches to achieving that objective. One approach involves bundling payments to providers that reduce costs while maintaining quality. Currently he is evaluating one such innovative payment model, the Alternative Quality Contracts (AQC) developed by Blue Cross Blue Shield of Massachusetts (BCBSMA). The AQC combines five-year global payment, pay for performance, and significant data support. This differentiates it from previous capitation models.

In addition to provider-oriented strategies, Professor Chernew has been a leader in the development of more sophisticated benefit designs that improve incentives facing consumers. Specifically, he has advocated Value Based Insurance Design (VBID) packages in which patients pay less for services that are considered to have a higher value and more for services that may be considered unnecessary or overused. Chernew has worked on the design and evaluation of VBID programs for several large companies and continues to be active in this area. With today’s fee-for-service model yielding unsustainable increases, designing innovative payment tolls and complementary benefit designs is critical.  Because of his work in this area, he was recently chosen to chair Harvard University’s Benefits Committee.

Understanding spending and spending growth

VBID and AQC are tools for addressing spending issues. Hand-in-hand with designing and evaluating these tools, Chernew is involved in ongoing efforts to understand the factors associated with spending increases. One study he is working on is examining geographic variations in spending and spending growth as they relate to commercial beneficiaries. While this subject has been studied extensively for the Medicare market, there has not been the same focus on the commercial market. His research has found that there is actually little correlation in geographic spending and spending growth between Medicare and commercial insurance. This may be because of differences in the way that prices are determined in each sector. He has already published one paper on this subject with HCP faculty member Joseph P. Newhouse, PhD, in The American Journal of Managed Care. He will continue to investigate these variations as well as the reasons for the disparities in commercial and Medicare spending patterns.

Advisory roles

Chernew serves on several influential committees and boards. For example, he was recently elected to the Institute of Medicine, for which he serves on the Determination of Essential Health Benefits committee. He also serves on the Medicare Payment Advisory Commission (MedPAC); just as Chernew and others are looking at ways to bundle payments to reduce spending, so is MedPAC, and Chernew brings his extensive experience to bear in his advisory role.

In addition, he is part of the technical advisory panel for Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) that will review the assumptions used by the actuaries to assess the fiscal health of the Medicare program.  

“While the Patient Protection and Affordable Care Act emphasizes access to care, unless costs are brought under control, it will be difficult to extend access and maintain quality,” said HCP Head Barbara J. McNeil, MD, PhD. “Professor Chernew’s work will be key to maximizing the success of this critical piece of legislation.”

Sources: Center for Financing, Access and Cost Trends, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 2001-2006; CMS, National Health Expenditure Projections 2009-2019, September 2010.