Relationship Between Payment Structures and Cost-Control Policy on Health Expenditures

Abstract

In 2019, the U.S. health expenditure reached 16.8% of GDP (OECD, 2021). I hypothesize that payment structure and cost-control policy lead to variation in healthcare spending. Despite an optimized payment structure, health expenditure rises without cost-control policies. An original approach is to explain the variation in healthcare spending by analyzing the Swiss and Japanese payment structure and cost-control policies to improve the sustainability of the U.S. public healthcare system. The objective is to improve the cost-effectiveness of the U.S. payment structure by looking at the Japanese and Swiss payment structures and then discuss their cost-control policies. First, the study finds that using the example of Knee and Hip Arthroplasty, the Japanese DPC incentivizes surgery less than the U.S. MS-DRG thanks to a national fee schedule to control costs. Second, the example of insulin shows that cost-control policies reduce health expenditures. Third, Japan has Long-Term Care Insurance with screening and certification to control costs. Based on the evidence and examples provided, I will prove that payment structures and cost-control policy lead to variation in healthcare spending.