How RAND Helps Governments Save Money on Health Care

For more than 60 years, RAND's analysis of U.S. health care issues has guided government leaders in allocating health resources efficiently and cost-effectively. This research has been instrumental in uncovering savings and finding solutions to health policy problems. In addition, RAND's work has highlighted where government investments in health care generate value and has tied specific programs to strong returns on investment or improved health outcomes. In other cases, RAND has helped policymakers pinpoint new opportunities for optimizing health care spending or avoiding unnecessary costs.

Benefits to the Federal Government

Reassessing Medicare Post-Operative Care Payments

Medicare payments for many procedures include not just the procedure itself but also most post-operative care within a set time, known as the global period. The Centers for Medicare and Medicaid Services (CMS) bases payment rates on the expected number and type of post-operative visits for each procedure. RAND found that the CMS approach often overestimated the numbers of such visits and frequently overpaid. RAND recommendations included adjustments for bundled payments, enabling annual savings of about $2.6 billion annually and redirection of funds to more-urgent needs.

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Ending a Costly Medicare Model

CMS used the results of a RAND evaluation in deciding to terminate Medicare's Value-Based Insurance Design Model test, saving the government from significantly overpaying health insurance plans. The model tested an array of Medicare Advantage plan interventions meant to lower spending and improve quality of care. RAND's evaluation found that the model resulted in higher costs per enrollee, driven by unintended effects that allowed insurers to increase payments from Medicare. Using RAND's analysis, CMS determined that it will save more than $2 billion annually by eliminating the program.

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Improving Medicare Patients' Heart Health Without Increasing Costs

Heart disease is the leading cause of death and illness for Americans on Medicare. The Million Hearts® Cardiovascular Disease Risk Reduction Model was a randomized trial conducted between 2017 and 2021 intended to improve cardiovascular care and health for Medicare patients. It offered rewards to health care providers for assessing and managing heart disease risk across large populations. Instead of examining individual risk factors, participating organizations focused on individuals with the highest risk for heart disease. RAND found that, over five years, the model lowered the occurrence of initial heart attacks and strokes by 3 to 4 percent and also reduced the overall death rate. The model achieved these gains without increasing Medicare spending.

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Cutting Seniors' Insulin Costs Without Increasing Government Spending

The cost of prescription drugs under Medicare Part D has increased substantially since the program began in 2006. In 2021, CMS began testing whether a cap on cost-sharing for insulin at $35 per prescription per month would reduce costs and increase access to insulins for Medicare patients. RAND's analysis found that the policy reduced consumer out-of-pocket spending on insulin without shifting costs to the federal government.

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Benefits to State and Local Governments

Using Price Transparency Research to Cut Hospital Costs

In a series of groundbreaking studies, researchers used newly available data to shed light on hospital costs and identify pathways to savings. The studies' overarching result: Hospitals charge private plans and other payers (including state health plans) approximately 2.5 times what they charge Medicare for the same services, with dramatic variations from state to state.

The National Academy for State Health Policy drew on RAND's methods and data to develop a hospital cost-tracking tool for states to conduct their own analyses. Multiple states have crafted policies to reduce government spending on hospital care:

• North Carolina's state health plan analyzed hospital commercial prices and negotiated better rates with a new insurer. The state also implemented reference-based pricing, tying hospital prices to Medicare rates, saving an estimated $300 million per year.
• The Montana state employee health plan limited hospital prices to a multiple of what Medicare pays, using data from RAND's studies and other sources to track hospitals' average prices as a share of what Medicare would have paid for the same services. The state saved $48 million over three years using this strategy.
• Oregon tied hospital prices to Medicare rates to cap hospital spending on inpatient and outpatient services. This move saved $112 million for the state's Public Employees' Benefit Board and Educators Benefit Board in 2020.

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Saving Through Comprehensive Care for Serious Mental Illness in Los Angeles County

To improve care for people with serious mental illness, Los Angeles County expanded Full Service Partnership (FSP) programs. FSPs take a team approach to offer complete, community-based psychiatric care, rehabilitation, and support to people with serious mental illness, helping them progress toward recovery while reducing the need for such costly interventions as emergency room visits and criminal justice detentions. RAND researchers estimated annual county government spending associated with five areas targeted by FSPs: homelessness, criminal justice detention, hospital stays for behavioral health, connection to outpatient primary care, and jobs. Comparing spending during the 12 months prior to individuals' enrollment in FSPs with the 12 months after, the researchers found that the county saved $82.9 million over five years. The largest share of savings ($63 million) came from reducing criminal justice detentions.

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Topics

• Employer Sponsored Health Insurance
• Health Insurance Markets
• Medicare Part D
• Mental Health Treatment