I have discussed how the U.S. health care system, particularly Medicare, is plagued with inefficient allocation of resources. (Read: “Moneyball for Health Care.”)

The question in this post is: What policy levers does the U.S. federal government have for ensuring health care dollars are spent wisely?

Value-based insurance design (VBID) is one.

VBID is a benefit-design strategy that incentivizes individuals to use higher-value health care services. The underlying premise of VBID is that when barriers to cost-effective services are removed, patients will use more of those services, and purchasers (e.g., Medicare) would get more value from the health care dollar. It essentially encourages patients to become better consumers of health care services.

An example of where this policy is currently being implemented is via the Affordable Care Act (ACA), which specifies that a health insurer provides benefits for, and prohibits the imposition of cost-sharing with respect to, such services as preventive care and screenings for women’s health.

VBID might encourage the use of high-value services through two general approaches:  positive inducements in the form of either financial incentives or enhanced services and discouraging the use of lower-value services.

A second policy under active evaluation by Medicare, called episode-based payment (or bundled payment), could also encourage the use of more effective treatments and devices, and where all involved parties—Medicare, providers  and patients—could share in the savings. Bundled payments cover medical services delivered during defined episodes of care and include the reimbursement from multiple providers—hospitals, physicians, post-acute care and home care—into a single payment.

Lastly, and potentially the most impactful, policy lever established under the ACA is the Independent Payment Advisory Board (IPAB). Based on the IPAB’s legislative charter to focus on payment rates, the IPAB could adjust the payment (reimbursement) rate to hospitals downward for a given procedure to reflect the lower cost of an effective, but cheaper, medical device.  Beginning in 2013, the IPAB is charged with reporting to Congress on ways to hold Medicare spending within legislated limits.

These policy levers, used either alone or in combination, could help ultimately save significant money.

For my next blog: Who should be taking responsibility for moving these initiatives forward? (Editor’s note: Read “Taking Responsibility for Health Care Reform.