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Payment Reform Update—Are We on the Path to 20 Percent by 2020?

By Brian Schilling

Three years ago, approxmately 20 large, self-insured employers performed a crude financial assessment to see whether their contracted health plans were paying doctors and hospitals the way they all knew they ought to be paying them—with payments tied to value. Their diagnosis: not really.

"In 2010, we found that only 1 percent to 3 percent of health care payments were related to health care quality or value," said Suzanne Delbanco, Ph.D., executive director of Catalyst for Payment Reform (CPR), an organization focused on payment reform.

But three years is a long time in the health care world, and things have changed. According to a recently issued CPR report, about 11 percent of payments are now tied to value—a huge jump whether you're starting from 1 percent, 3 percent, or somewhere in between.

Curiously, the health care media gave this report a collective shrug. A CPR collaborator gave Purchasing High Performance a heads-up that the report "wasn't going to be very good news." And CPR's own press release begins with the word, "Only." That no one seems impressed by the 11 percent figure is perhaps because it is still plainly shy of whatever magical threshold will drive real change in health care quality and affordability: sure we've made tremendous progress in a short period of time, but there's still SUCH a long way to go.

CPR's goal is 20 percent of payments tied to value by 2020. At the current pace, we'll get there a few years early. Delbanco has been quoted as saying that the 20 percent goal was initially selected because it was "hard, but attainable," and her view hasn't changed much.

Delbanco goes on to note that in order to reach the 20 percent goal, employers need to step up to the plate. To that end, CPR offers the following recommendations.

    • Adopt and use the CPR-developed health plan request for information (RFI) and model health plan contract language. The RFI essentially asks health plans to tell employers and other health care purchasers what they are doing with respect to performance-based payment, how they're measuring the impact of those payments, and their future plans. The model health plan contract language helps employers and other purchasers outline their expectations for how their health plan partners with evolve their approach to payment.
    • Push price transparency. Should a CT scan of the head cost $240 or $1,421.63? Should an MRI of the brain cost $625 or $3,316? Those are real prices (in Fairfield, Conn.) for these services and they reflect a broad national problem: huge, inexplicable price differentials for the same services in the same geographic regions. To complicate matters, the prices aren't readily available, leaving employees and employers to pick up huge, unnecessary health care bills because they couldn't shop around. At a minimum, says CPR, employers should demand that providers make pricing information available for certain high-volume or high-cost services.
    • Use reference-based pricing. Used in conjunction with price transparency, reference-based pricing can be a powerful tool for controlling health care costs. The term refers to placing a cap on an allowable charge for a given clinical service. For example, a simple cholesterol test might be capped at $20, a price at which the service is available in the community from a reputable provider. If a patient receives that same test for more than $20, he or she is responsible for the difference. One five-year study of reference-based pricing for prescription drugs used to treat gastrointestinal issues found that overall costs related to those drugs dropped by about 50 percent. Total out-of-pocket costs for plan enrollees were also lower.
    • Stop paying more for preterm elective births. South Carolina's Medicaid program recently drew national attention with its newest payment policy: it would no longer pay for unwarranted, elective preterm births. Such elective deliveries have been shown to be not only very costly as compared with routine deliveries, but also potentially harmful to infants. Delbanco says it may be a stretch for some payers to negotiate complete nonpayment for preterm elective deliveries, but they may be willing to consider "neutralizing" payment arrangements—that is, removing financial incentives to make such deliveries available.
    • Stop paying for undesired events. The battle against hospital-acquired infections has raged for decades, but CPR say one strategy might turn the tide: stop paying for them. The typical hospital-acquired infection can extend a routine hospital stay and generate charges of $30,000 or more. It's ludicrous to pay for a hospital's mistake, says Delbanco. "Where's the incentive to improve when every time you fail you make more money?" she says.

Federal Support
Employers aren't alone in looking for a more enlightened way to pay for health care. The federal government has weighed in, in the form of the Affordable Care Act, which set aside billions of dollars to fund pilot programs to rapidly test and expand initiatives that use payment reform to improve health care quality. The law also launched the Center for Medicare and Medicaid Innovation, which is explicitly tasked with identifying worthy reforms and then launching them throughout the Medicare system.

What happens in the Medicare program matters not just because it is the only payer big enough to dictate terms to insurers, but also because it has a track record of coordinating its efforts with private payers. Beginning this year, Medicare reimbursement rates will be tied to scores on patient satisfaction surveys. That may not technically be a measure of health care quality, but it's certainly a step in the right direction. At risk for Medicare plans are hundreds of millions of dollars annually. In fiscal year 2013, 1 percent of Medicare payments, or $964 million, are in play. Next year, the amount doubles to 2 percent.

This year's State of the Union address may have included a hint that future Medicare payments will be tied even more closely to quality of care. Specifically, President Obama said, "We'll bring down costs by changing the way our government pays for Medicare because our medical bills shouldn't be based on the number of tests ordered or days spent in the hospital. They should be based on the quality of care that our seniors receive."

Plans on the Cutting Edge

In certain markets, value-based payment is already a reality. According to Francois de Brantes, executive director of the Health Care Incentives Improvement Institute, and developer of the Prometheus payment model, Anthem Blue Cross Blue Shield in Wisconsin, HealthNow New York, and a handful of small plans in central Pennsylvania all currently have fully operational, if partially manual, value-based payment systems.

"We know that it's possible and we know that it will save money over the long haul," says de Brantes.

Moreover, says de Brantes, McKesson and at least one other big health IT software vendor now offer off-the-shelf value-based payment systems that can be appended to core claims systems.

But even so, says de Brantes, most national plans are still dragging their heels: "There's lip service among the national plans, but no real action. They're finding it difficult to justify the investment of hundreds of millions of dollars in value-based payment systems without a clear business case. They're waiting for employers to tell them that they have to before they take the plunge."

For more information about how to get involved in promoting the payment reform agenda, visit: CPR's website.

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