Administrative Simplification in the Health System  - Health Cost Containment

Updated February 2015

Cost Containment header

The following NCSL Issue brief was distributed to legislators and legislative staff across the country and was included in the June 16th, 2010 issue of NCSL's e-News.

Administrative Simplification in the Health System - PDF File
Colorado Supplement: Administrative Simplification in the Health SystemPDF File
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Cost Containment Strategy and Logic

A global payment—a fixed prepayment made to a group of providers or a health care system (as opposed to a health care plan)—covers most or all of a patient’s care during a specified time period. Global payments are usually paid monthly per patient over a year, unlike fee-for service, which pays separately for each service (Figure 1). In most cases, a global payment encompasses physician and hospital services, diagnostic tests, prescription drugs and often other services, such as hospice and home health care. Under a global fee arrangement, a large multispecialty physician practice or hospital-physician system receives a global payment from a payer (e.g., health plan, Medicare or Medicaid) for a group of enrollees. It is then responsible for ensuring that enrollees receive all required health services. Global payments usually are adjusted to reflect the health status of the group on whose behalf the payments are made. Entities that receive global payments sometimes are known as accountable care organizations (discussed in a separate brief ) and can include both formally and loosely organized health care systems. Global payment provides an incentive for providers to coordinate and deliver care efficiently and effectively to hold down expenses.

Summary of Health Cost Containment and Efficiency Strategies - Brief #1- Administrative Simplification

State/Private Sector Examples  Strategy Description Target of Cost Containment Evidence of Effect on Costs
Maine, Utah, Washington and Humana Health Streamlining administrative functions in the current health system (e.g., standardized forms and processes, streamlined claims processing, reduced and/or coordinated government regulations, etc.).
  • High health care system administrative costs.
  • Administrative inefficiencies associated with complex, uncoordinated, often duplicative regulatory and administrative requirements.
Limited evidence indicates that efforts to reduce administrative expenses have resulted in some efficiencies.

Additional Resources

  • The Minnesota Department of Health (MDH) released its annual Administrative Costs at Minnesota Health Plans in 2013 report.  It contains information about administrative costs reported by health plan companies (group purchasers, almost all of which are non-profits) that conducted business in Minnesota during 2013. The report shows total administrative spending as a percentage of total spending steadily declining since 2001. Over the past four years, administrative spending has remained relatively stable at approximately 7.2% of total spending. (March 2015)

  • Costs of Vermont’s Health Care System: Comparison of Baseline and Reformed System- Vermont Legislative Joint Fiscal Office and the Department of Banking, Insurance, Securities and Health Care Administration, 11/1/11.

About this NCSL project

NCSL’s Health Cost Containment and Efficiency Series will describe two dozen alternative policy approaches, with an emphasis on documented and fiscally calculated results. The project is housed at the NCSL Health Program in Denver, Colorado. It is is led by Richard Cauchi (Program Director) and Martha King (Group Director) with Barbara Yondorf as lead researcher. 

NCSL gratefully acknowledges the financial support for this publication series from The Colorado Health Foundation and Rose Community Foundation of Denver, Colorado.