The Dollar or Disease Burden: Caps on Healthcare Spending May Save Money, but at What "Cost" to Patients?

Abstract

Objectives: Various strategies to address healthcare spending and medical costs continue to be debated and implemented in the United States. To date, these efforts have failed to adequately contain the growth of healthcare cost. An alternative strategy that has elicited rising interest among policymakers is budget caps. As budget caps become more prevalent, it is important to identify which features are needed to ensure success, both in terms of cost reduction and health improvement.

Methods: We explored the impacts of different features of budget caps by comparing hypothetical service level and global budget caps across 3 annual budget cap growth strategies over a 10-year timeframe in 2005-2015 for 8 of the most commonly occurring conditions in the United States. Health was assessed by a measure of disease burden (disability-adjusted life years).

Results: The results indicate that budget caps have the potential for creating savings but can also result in patient harm if not designed well. As a result of these findings, 5 principles were developed for designing budget caps and should guide the use of budget caps to address medical spending.

Conclusions: As public discussion grows about the use of budget caps to constrain health spending, it is critical to recognize that the budget cap design and the resulting healthcare provider behavior will determine whether there is potential harm to public health. Budget cap design should consider variability at the condition level, including patient population, improvements in health, treatment costs, and the innovations available, to both create savings and maximize patient health. In assessing the impact of healthcare spending caps on costs and disease burden, we demonstrate that budget cap design determines potential harm to public health.

Keywords: budget caps; capitation; health spending; prospective payment.