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Cost Containment
September 28, 2022

The Importance of Cost Containment in Healthcare in the United States

3 minute read
calculator and a stethoscope on top of a medical bill show the importance of cost containment in healthcare

 

In the United States healthcare system, medical costs continue to escalate. Such increased healthcare spending isn’t unusual in most other countries right now, particularly as the third year of the COVID-19 pandemic nears an end. However, compared to ten other high-income countries, the disproportionately higher U.S. healthcare costs fail to deliver a superior—or even effective—health system, according to a report by the Commonwealth Fund.

While the U.S. only accounts for around 4% of the world’s population, it is responsible for approximately 40% of all global healthcare expenditures. Domestic healthcare spending now accounts for 20% of the national GDP, far outpacing other nations’ spending, yet the U.S. healthcare system ranks the lowest-performing scores by a considerable margin.

It’s not difficult to see the importance of cost containment in healthcare here in the U.S. As healthcare continues to rise at unsustainable rates, it currently outpaces both inflation and economic growth. This article will discuss some of the systemic causes behind problematic U.S. healthcare costs and suggest methods to help curb them.

Causes of Rising Healthcare Costs

Because America is the world’s single largest spender on healthcare, one might think that Americans seek more medical services than other nations. However, this is not the case. Instead, Americans are simply spending more for similar medical services. There are a few reasons why this is the case:

Lack of Choice: Americans have little choice regarding where and how much they pay for healthcare services, unlike most other consumer industries. Americans seeking healthcare cannot typically shop around for the best prices. 

Instead, they are usually at the whim of their insurance network—which is often only available through one’s employer. In addition to limited access, this lack of agency offers little incentive for greater competition between insurance companies and healthcare providers. 

Lack of Transparency: Not only do Americans lack the ability to maneuver around networks, but they also lack insight from established price benchmarks to ensure they aren’t overpaying for services. 

For example, when shopping for a car, buyers can reference Kelley Blue Book listings to find out how much a specific make and model should reasonably cost. This can prevent overpaying when you’re ready to make a purchase. 

Lack of Payment Integrity: Because insurance companies, hospitals, and providers are all profit-driven entities, they will rarely make any effort to ensure the billing process contains no errors or overcharges. 

Most Americans with traditional insurance plans remit payments to their insurance company after the company has already paid the healthcare provider. This means that patients simply pay for any errors—which can often be as common as 80%—without question.

While each one of these causes can create its own separate problems, they often serve as mutually reinforcing issues that drive up patient costs. This many-headed monster of cultural and economic factors is why the importance of cost containment in healthcare cannot be overstated.

The Importance of Cost Containment in Healthcare 

Cost containment solutions can be an effective way to lower costs for individual patients and employers and also to help prevent industry-wide cost increases. Below, we list several practices to help effectively contain costs on a micro level for patients and shift the balance back in their favor. Some of the best cost containment solutions include:

Reference-Based Pricing:  Reference-based pricing is a cost containment strategy that cuts directly to the root of some causes behind increased healthcare costs. In contrast to traditional private insurance healthcare models, reference-based pricing is a pre-payment, self-funded model that lowers healthcare costs by using pricing benchmarks for medical services.

This means that prices can be negotiated from a position of knowledge to lower rates before remitting any payments. Similar to the example of purchasing a car, reference-based pricing gives patients much more agency in managing their healthcare services because they can also shop around for the best prices before scheduling medical services. 

Because it doesn’t have to serve as a complete replacement for traditional healthcare models, reference-based pricing also offers enhanced flexibility. It can be “wrapped around” existing healthcare plans to cover specific, typically more costly, procedures. 

Clean Claim Reviews: When the vast majority of medical bills contain errors, many patients are not only overpaying for services but also paying for line items that are double- or triple-billed, not to mention services that were never performed.

Clean claim reviews erase unnecessary charges from the billing process by reviewing every line item billed for high-dollar procedures. This method offers immediate, significant savings for patients and also promotes payment integrity and transparency

6 Degrees Health Offers Powerful Cost Containment Solutions

Now that you understand the importance of cost containment in healthcare, you’ll need a partner to help you implement some effective strategies. For over a decade, 6 Degrees Health has worked diligently with third-party administrators (TPAs) and brokers to offer powerful cost containment solutions to patients and employers. 

6 Degrees Health was founded by industry veterans with a shared mission of driving down skyrocketing healthcare costs and helping to facilitate a more equitable healthcare industry. To help you save up to 40% on your healthcare spending, we don’t offer standard insurance policies; instead, we replace or enhance services with cost containment strategies like reference-based pricing.

Interested in learning more about the importance of cost containment in healthcare? Speak to a representative today to find out how our reference-based pricing model can help you realize the true benefits of healthcare.

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