Why is Cost Containment Important in Healthcare?

Why is cost containment important in healthcare? It isn’t shocking to learn that healthcare costs have risen astronomically in recent years, with far-reaching implications that affect employers, brokers, third-party administrators, and, of course, individual employees. 

Many patients struggle to afford the quality care they deserve. Over half of all Americans now carry medical debt. The burden of this debt can be detrimental to both physical and mental health. It can also exacerbate existing medical conditions. 

Such a situation is alarming, and can result in many people forgoing medical care altogether. Even with an insurance plan, high deductibles and other cost-sharing arrangements still result in high medical bills. Some patients adjust their lifestyles by reducing spending on food or clothing, reaching into savings, and even taking on new debts to pay off medical bills.

This all may seem like a tough pill to swallow. 

Luckily, solutions to help relieve such financial challenges are readily available to health plans, insurance providers, and employers. 

By introducing some of the cost containment methods discussed in this post, employers can reduce their company spending on employee healthcare plans, and, in turn, offer higher quality care and greater accessibility than private insurance that restricts care to in-network providers. 

Using a few examples, we will answer the question: “Why is cost containment important in healthcare?”

What Exactly Is Cost Containment? 

We can broadly define healthcare cost containment as various methods for reducing—or containing—increasing healthcare costs. These strategies and practices are designed primarily for employers, health plans, and insurance providers to mitigate the rising cost of healthcare for employees and clients, respectively.

Cost containment examples include evaluating alternative reimbursement models, changing behaviors, or accessing care outside your typical insurance network. Effective cost containment strategies can lower a company’s healthcare spending and also increase the quality of care, expand access to healthcare services, and improve provider integrity. 

One of the more popular cost containment strategies is reference-based pricing. Reference-based pricing, or RBP, is a cost containment method that utilizes a database of aggregate prices for healthcare services to negotiate lower prices from an informed position, not unlike using the Kelley Blue Book value to negotiate the purchase price of a vehicle. 

How Does Cost Containment Affect Me?

Many Americans still do not realize the full benefits that quality healthcare can provide. Not only can effective cost containment lower your company’s spending, but it can also remove barriers to quality healthcare for all your members. 

Cost containment can manifest in immediately tangible ways. Let’s look at a few examples.

A Trip to the Emergency Room

It’s not uncommon for Americans to face a sudden health emergency that requires a trip to the ER. Emergency visits, however, can be incredibly expensive. Depending on where you live, the average trip to the ER could cost up to $3,100.

This number may seem a bit ridiculous when you consider that most trips to the ER are for issues such as acute pain or minor injuries. But such high prices are part of a common theme in the healthcare industry. 

A lack of transparency allows providers to charge arbitrary amounts for services as simple as Tylenol or non-sterile gloves ($15 for a single pill and $53 for single pair, respectively). Billing errors are also incredibly common. As much as 80% of all medical bills contain errors that often lead to significant overcharging for patients. Ironically, hospitals very rarely undercharge patients. 

Let’s say you decide to go to the emergency room because you are running a high fever, but it turns out to be the flu. You receive a $1,500 medical bill and wonder how a quick visit to the emergency room could cost so much. You may not be well-versed enough in medical terms or the prices of medical procedures to understand the costs for each item on the bill. 

Instead, health plans using a cost containment method called a “clean claim review”—in which industry professionals heavily scrutinize each line item billed—could remove any errors that the client might have otherwise paid for. Moreover, the review could also immediately identify any unreasonable charges, resulting in a much lower amount paid to the hospital.

Out-of-Network Surgery

Many people seeking costly medical services such as major surgery struggle to find effective care within their network. Insurance companies often won’t pay for services at their discounted rate out-of-network. The patient might then find themselves footing the entire bill for services that may have been life-saving. 

When employers have cost containment strategies in place, however, reference-based pricing can expand options for care and also lower the cost. For example, if an employee who needs an appendectomy has a plan with a self-insured employer who utilizes cost containment strategies,  RPB allows them to explore alternative healthcare providers. 

Reference-based pricing can also function as a wrap-around service that supplements an employer’s traditional insurance plan. If a hospital typically charges $15,000 for an appendectomy, and data shows that Medicare pays that hospital an average of $9,000 for the same service, that reference point can help negotiate the provider to accept a more reasonable price. Not only will your employee save a lot of money on an operation and receive potentially better care, but employers have a reduced payout amount beyond the employee’s deductible.

Cost containment strategies can serve as powerful tools to tilt the dynamics of healthcare in favor of the patient. It’s important, though, that employers choose solutions that work best for their individual companies. Even after you know exactly why cost containment is so important in healthcare, it helps to find the right partner who can maximize your potential savings and accessibility. 

6 Degrees Health Is a Cost Containment Expert

Started by healthcare industry experts, 6 Degrees Health is dedicated to using its industry-leading knowledge to create the most effective cost containment solutions. With our objective and data-driven approach to cost containment, we work diligently to significantly lower your healthcare spending while expanding the level of care for your members. 

Backed by our sophisticated, proprietary software, we offer an advantage over other healthcare companies. 6 Degrees Health is cost-containment driven.

Why is cost containment important in healthcare? Speak to a representative today to find out how switching to a reference-based pricing model can help you save big and realize the true benefits of healthcare.