IHP 620 Module 9 Final Project Example

Bending the Curve Without Shifting the Burden: Economic Analysis of Granite Peak's Employee Plan

[Student Name]

Southern New Hampshire University

IHP 620: Economic Principles of Healthcare

Module Nine Final Project

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Bending the Curve Without Shifting the Burden: Economic Analysis of Granite Peak's Employee Plan

This report advises Granite Peak Health's executive team and benefits committee on how to slow the growth of the employee health plan. It applies economic reasoning and evidence to the plan's cost drivers, compares realistic options and recommends a package that saves money without pushing costs onto the employees least able to bear them.

Executive Summary

Plan costs have risen from $104 million to $142 million in four years and will reach about $193 million in four more if nothing changes. Roughly half of the growth reflects prices charged by outside providers, a quarter specialty drugs, 15% higher use and 10% enrollment. The report recommends against a $2,500 deductible and in favor of a package combining free chronic disease medications, reference pricing for orthopedic surgery and high-cost scans, a bundled orthopedic contract, shared savings with Granite Peak's primary care network and biosimilar adoption, projected to save $12 million to $15 million a year by year three.

The Economics of the Problem

The plan's situation illustrates several economic features of health care. Prices, not quantities, drive most of the growth, reflecting the market power of two outside hospitals. Specialty drug prices are set by manufacturers holding patents. Insurance lowers the price employees see at the point of care, so some use responds to coverage, but that is the smallest driver. And because premium growth is passed on to employees through slower wage growth over time, containing costs is also a way to protect pay.

Why Not a High Deductible

A $2,500 deductible would produce the largest immediate employer savings, about $22.6 million a year. Yet a study by Brot-Goldberg et al. (2017) found that when a large employer made this change, spending fell because employees used fewer services across the board, including potentially valuable care, not because they found cheaper providers. For Granite Peak, a deductible would target the smallest driver of growth, reduce care among employees with chronic conditions and shift costs toward lower-wage staff.

Free Chronic Disease Medications

The package begins by removing copayments for medications that control diabetes, hypertension, high cholesterol, asthma and depression. In a randomized trial, Choudhry et al. (2011) showed that eliminating copayments for key drugs after a heart attack improved adherence and reduced major vascular events or revascularizations, without raising total health spending. At an estimated $2.1 million in yearly drug spending before any savings from fewer complications, the change protects the health of employees most at risk.

Reference Pricing and an Orthopedic Bundle

For hip and knee surgery, back operations and MRI or CT scans, the plan would pay up to a reference price based on Granite Peak's internal costs and the lowest-priced high-quality outside providers. Robinson and Brown (2013) found that when California's public employee program adopted reference pricing for hip and knee replacement, patients shifted to lower-priced hospitals and several high-priced hospitals reduced their prices. A bundled contract with an outside orthopedic center, including a complication warranty, would give employees a no-cost option for surgery Granite Peak does not provide.

Shared Savings With Primary Care

Granite Peak's primary care practices would receive half of any savings below a risk-adjusted spending benchmark for attributed employees, provided quality targets are met. Song et al. (2011) found that in the first year of a commercial global budget contract in Massachusetts, spending growth slowed, largely because participating groups sent scans, lab work and day procedures to cheaper sites, and quality improved. Shared savings give Granite Peak's physicians a reason to do the same.

Specialty Drugs

Through its pharmacy benefit manager, the plan would prefer biosimilars where clinically appropriate and route high-cost drugs through Granite Peak's specialty pharmacy, lowering acquisition costs. This addresses a quarter of growth that benefit design alone cannot reach.

Estimated Effects

The table summarizes projected annual effects by year three. Estimates rest on behavior observed in other settings and are uncertain, so ranges are given.

Table 1. Projected Annual Effects of the Recommended Package by Year Three

Note. Composite estimates; totals rounded and reflect overlap between elements.

Equity

Unlike a deductible, the package lowers costs for employees with chronic illness, keeps a no-cost surgical option available and does not raise premiums for lower-wage staff. The committee should also consider scaling premium contributions by wage band, since flat contributions take a far larger share of income from a food service worker than from a physician.

Implementation

The package can be introduced over twelve months. In the first quarter, the plan would remove copayments for chronic disease medications and open enrollment in biosimilar programs, changes employees will notice immediately and welcome. In the second quarter, reference pricing and the orthopedic bundle would begin, supported by a price lookup tool, a nurse navigator line and a clear exceptions process. Shared savings with primary care would start at the beginning of the next fiscal year, once attribution rules and the benchmark have been agreed with practice leaders. Communication would rely on managers, benefits fairs and short videos rather than plan documents alone.

Risks

Savings may be smaller than projected if employees do not change providers or if outside hospitals refuse to negotiate. Reference pricing can produce surprise costs if poorly communicated. Shared savings could encourage practices to avoid complex patients without careful risk adjustment. Each risk has a mitigation: clear communication, exceptions processes, risk adjustment and quality gates.

Measures and Review

The committee will track plan cost per member per year, the share of spending at outside facilities, medication adherence for chronic conditions, joint replacement episode costs and complications, biosimilar uptake and employee satisfaction. Results will be reviewed quarterly and the package adjusted after year one.

Recommendation

Granite Peak should adopt the targeted package beginning with the next plan year, phasing in reference pricing and the orthopedic bundle in the first six months and shared savings by the end of year one. The package is projected to cut annual growth roughly in half while improving care for employees with chronic disease and protecting lower-wage staff from new out-of-pocket costs.

Conclusion

Economics explains why Granite Peak's plan costs are rising and why the most obvious response, a higher deductible, would aim at the wrong target. A package focused on prices, drugs and provider incentives addresses the real drivers and fits the system's mission.

References

Brot-Goldberg, Z. C., Chandra, A., Handel, B. R., & Kolstad, J. T. (2017). What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics. The Quarterly Journal of Economics, 132(3), 1261-1318. https://doi.org/10.1093/qje/qjx013

Choudhry, N. K., Avorn, J., Glynn, R. J., Antman, E. M., Schneeweiss, S., Toscano, M., Reisman, L., Fernandes, J., Spettell, C., Lee, J. L., Levin, R., Brennan, T., & Shrank, W. H. (2011). Full coverage for preventive medications after myocardial infarction. New England Journal of Medicine, 365(22), 2088-2097. https://doi.org/10.1056/NEJMsa1107913

Robinson, J. C., & Brown, T. T. (2013). Increases in consumer cost sharing redirect patient volumes and reduce hospital prices for orthopedic surgery. Health Affairs, 32(8), 1392-1397. https://doi.org/10.1377/hlthaff.2013.0188

Song, Z., Safran, D. G., Landon, B. E., He, Y., Ellis, R. P., Mechanic, R. E., Day, M. P., & Chernew, M. E. (2011). Health care spending and quality in year 1 of the alternative quality contract. New England Journal of Medicine, 365(10), 909-918. https://doi.org/10.1056/NEJMsa1101416