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April 19, 1995

Mechanisms for Controlling Costs

Author Affiliations

From the Department of Family and Community Medicine (Drs Grumbach and Bodenheimer) and the Institute for Health Policy Studies (Dr Grumbach), University of California, San Francisco.

JAMA. 1995;273(15):1223-1230. doi:10.1001/jama.1995.03520390085040

A previous article in this series, "Painful vs Painless Cost Control,"1 discussed the overall relationship between costs and health outcomes. In this article, we examine specific methods for controlling costs.

Financial transactions under private or public health insurance have two components2: (1) a financing transaction consisting of the flow of dollars (premiums or taxes) from the payers (individuals and employers) to the health insurance plan (private health insurance or government programs), and (2) a reimbursement transaction involving the flow of dollars from insurance plans to physicians, hospitals, and other providers (Figure). Cost-control strategies can be divided into those that target the financing side vs those that impact the reimbursement side of the funding stream (Table).

FINANCING CONTROLS  Cost controls aimed at the financing of health insurance attempt to limit the flow of funds into health insurance plans, with the expectation that the plans will then be forced to

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