Chapter 9 in Bodenheimer and Grumbach, Understanding Health Policy: A Clinical Approach,

Chapter 9 in Bodenheimer and Grumbach, Understanding Health Policy: A Clinical Approach, identifies
various mechanisms for controlling costs in healthcare.  Ultimately, a combination of approaches may be
advisable.  What is your view of the most effective cost control strategy or collection of strategies and
why?
Each response written is labeled “Essay Response 1, Essay Response 2. Write a response to each essay,
adding additional insight/info they didn’t include or your own thoughts backed up with either the
textbook or other journal articles related to the topic. Do not respond to the initial essay, respond to
these responses. Each reply should be 150 words and use at least 1 source. Please don’t throw in
words like, For Instance or For example or Foremost or Firstly, Secondly, In Conclusion or any other
words that are pointless and unnecessary and meant to just add to the word count. Just write the
responses as best as you can.
This is the reference for the textbook in the attached pdf:
Bodenheimer, T., Grumbach, K., Lo, B., Kierszenbaum, A. L., Tres, L. L., Ferrier, D. R., …
& Peet, A. (2020). Understanding health policy: A clinical approach. McGraw-Hill

Essay Response 1 – Tracy
The United States spends almost two times as much money on healthcare as it does provisions. There
are a number of factors that contribute towards healthcare costs: demographics, technology, medical
malpractice, administrative costs, and payment system distortions. These are just a few of the issues
that drive the cost of healthcare up. Medical technology has helped to advance healthcare; however, it
has also increased healthcare spending significantly. Savings may be achieved by reducing inappropriate
utilization of services and encouraging clinically-effective care based on proven and effective research.
There is no single cause for the escalating cost of healthcare, as multiple factors are embedded
throughout the system.

As payment models move from fee-for-service to value-based care, hospitals and health systems are
working to maintain budgets by reducing spending across individual departments. Many hospitals are
realizing significant savings in the medical device supply chain-one of the hospital’s costliest areas.
Supply costs are one of the second highest expenses in a hospital, only second to labor. It is important
that the purchasing division makers have a solid, working knowledge of specific medical devices, in
addition to a business background, for credibility and physician buy-in. Many organizations often find
the challenge with “identifying the costs of products and services by the responsible organizational
segment, capturing the full cost of products and services of internal departments and selecting and
consistently using a costing methodology” (Eichler, 2004).
In order to accomplish this, we must develop a plan and analyze problems that need to be solved.

1- Streamline to drive out redundancy, as many processes and devices are similar and lead to
ineffectivess and inefficiencies
2- Optimize product selection through physician engagement
3- Show physicians the cost per case and how they compare to others in the department
4- Educate physicians on the effectiveness of less e pensive devices that offer the same clinical
outcomes
Furthermore, cost allocation distributes the costs across several areas of the organization. The cost
allocation methodology identifies what services are being provided and what these services cost. This
method is often implemented as a means to control costs and when implemented effectively, the
business unit becomes directly accountable for the services they consume. When the unit becomes
aware of the service requirements and utilization, they can make more informed decisions (St-Hilliard,
2000).
By thinking creatively about supply chain management and engaging physicians in those efforts,
organizations can achieve greater value and savings more quickly, which can ultimately make a
significant impact on a hospital’s overall financial goals and cost control measures.

Bodenheimer, T. & Grumbach, K. (2020). Understanding health policy: A clinical approach. New York:
McGraw-Hill Medical.
Eichler, H.G., Kong, S., & Gerth, W. (2004). Use of cost-effectiveness analysis in health-care resource
allocation decision making: how are cost effectiveness thresholds expected to emerge?. Value in health,
518-528.
St-Hilliare, C., & Crepeau, P.K. (2000). Hospital and unit cost allocation methods. Healthcare
management forum, 25-32.

Essay Response 2 – Shayna
According to our text, cost control strategies can be divided into those that target the financing side and
those that target the payment side.  These strategies can either be regulatory, controlled by taxes, or
competitive where plans compete based on price (Bodenheimer & Grumbach, 2020, pp. 105-106).  It is
clear in our health system we have attempted a variety of strategies to help drive down the cost of
healthcare.  There are pros and cons to each one of these approaches, I will give my view on what I think
is most effective but also the downside.
Patient cost sharing- this strategy puts a larger financial burden on the patient for healthcare services.
This can be a good deterrent for overuse of medical services, but it can also drive individuals away that
need healthcare.  Personally, my organization operates an ER and an Urgent care facility.  A benefit to
our employees and their dependents is no co pays for Urgent Care visits for those who utilize the
organizations health plan.  Use of the ED will come with a hefty copay on par with most health insurance
plans.  The high cost keeps our employees out of the ED with the exception of the most ill or severely

injury.  Many healthcare plans operate in the same manner, copays for urgent care are less expensive
than emergency care and primary care is less expensive than a specialist.
Utilization management- focuses on physicians to control costs.  This seems like a reasonable way to
control the cost of healthcare.  Physicians only give patients what is medically necessary, no more no
less.  However, this strategy comes with its own bag of issues.  Consider when a physician prescribes a
medication.  Without the physician understanding the patients price sensitivity and the formularies
operating in that given market they are apt to choose a medication that drives up the cost of care for
that patient (Carrera, Goldman, Joyce, & Sood, 2018).
I do favor the cost control of physicians using medical necessity as a means of caring for patients.  Many
healthcare IT systems aid physicians in choosing the appropriate diagnostic tests based on a patient
diagnosis code.  However, even medical necessity can be subjective based on the physician.  If you have
a chance read the attached article about healthcare fraud as it relates to medical necessity, scary stuff.
Medical Necessity & Medicare Fraud – ProQuest (esc.edu)
Bodenheimer, T., & Grumbach, K. (2020). Understanding health policy, a clinical approach. New York:
McGraw Hill LLC.
Carrera, M., Goldman, D. P., Joyce, G., & Sood, N. (2018). Do physicians respond to the costs and cost-
sensitivity of their patients? American Economic Journal, 113-152.
Mahany, B. (2019). Medical Necessity & Medicare Fraud. Due Diligence.

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