You Get What You Pay For

Changing how doctors and hospitals are paid is the single most important thing we can do to eliminate unnecessary increases in health costs. We need to change the payment system from paying for how much is done to how well the right thing is done.

In today’s system, doctors and hospitals are paid more to do more and paid even more to do even more technologically-intensive services. While much of this advanced technology is terrific and the vast majority of doctors don’t make treatment decisions based on generating income, some compelling evidence has been developed that shows the following:

  • Physicians that own their own X-ray facilities do 40% more x-rays than those who don’t have ownership—-and the outcomes of the patients who received  fewer tests are the same as those that received  more tests
  • People who live in areas of the country that have a greater supply of orthopedic surgeons have hip and knee replacements 2-3x more often than people who live in areas with fewer surgeons…..for the same conditions and withidentical health outcomes

This data is hard to explain any other way than to say that doctors and hospitals have the best of intentions but in the end respond to incentives like the rest of us. The conclusion is that unless we fundamentally change this “fee-for-service” payment approach, we’re going to continue to end up paying for more than we need.

What Does It Mean To Pay for Quality?

Over the past decade the ability to reliably measure health care quality has expanded dramatically. We know now that there are significant differences in how well different physicians and hospitals perform services like joint replacements, heart surgery, and the management of people with diabetes. But the payment system has not kept up – we pay the same fee to the best as we do to the worst. In fact, good quality can actually be ‘punished’ by the fee for service system; the well-managed diabetic has fewer complications and needs to see the doctor less often. The loss of office visits results in lower revenue to the physician—exactly the opposite of a rational system.

There are some promising examples of paying for quality. A hospital system in Pennsylvania actually warranties the results of its heart surgeries.  It takes a single payment for the entire episode of care (lower than the market rate), and does not charge for any avoidable complications that might occur. The quality and outcomes at this hospital are among the best in the country. And, Medicare is in the process of instituting a pay for performance model in which hospitals that meet quality standards get paid more and those that miss them get paid less.

What Can Employers Do?

Notably absent from leading edge examples of payment reform are efforts led by the health insurers. This is a problem as employers rely on health insurers to be good stewards of our health care dollars. Why have insurers been so slow to this game?

The answer is that the insurers’ themselves have conflicting incentives. As much as they are good stewards for employers in many areas, being proactive in the realm of payment reform raises two issues: first, paying on quality means potential conflicts with some of the doctors and hospitals that they need to have in their networks (some providers with lower quality will get paid less), and second, changing their claims payment systems to something other than fee for service is costly. For these reasons, little will happen without proactive and concerted employer pressure.

The problem is, this area is complicated and a lot is at stake. It is a fair question to ask whether employers are ever going to become experts in something as complicated as payment to doctors and hospitals and how could they ever have any influence over the one million doctors and 5,000 hospitals that are represented by the very powerful American Medical Association and American Hospital Associations. The answer is that it doesn’t make sense for employers to go this alone. Several times over the past decade, however, employers have banded together to put pressure on the health system to change; just two examples of this are the Leapfrog Group, in which employers pressured hospitals to publicly release data about their quality performance, and the PCPPC, or Patient-Centered Primary Care Collaborative, which puts pressure on health insurers to support medical homes, a structure that enables primary care doctors to spend more time with patients and better help them navigate the health system. Both were big successes which resulted in system improvements and better care and affordability for employees.

The good news is that there is already a group representing employers, called CPR (Catalyze Payment Reform The strategy of this non-profit, which I founded when I was at GE and which now has over 30 employer members, is to use employer leverage to pressure health insurers to accelerate their efforts in paying for quality. CPR has created RFP and contract language for employers to use and has organized health insurer-specific user groups to get the insurers to commit to specific changes and timelines. The Group is also working closely with the Medicare program to make sure that government efforts in this area do not inadvertently conflict with private sector interests. It is easy to see a scenario in which Medicare pays hospitals less and the hospitals then make up the shortfall by increasing the cost shift to employers.

Equity Healthcare has joined CPR as a corporate member, but I encourage all of you to join as individual companies. At this point there is no cost involved and while all levels of engagement are encouraged, the sole requirement of membership at this point is lending your company name to the effort.  This is a big deal: the more individual company names listed in support, the faster the insurers will respond. Until we get the payment system fixed, the impact of everything we’re doing to get more employees engaged as active consumers will have a fraction of the impact it could have.