Payment Reform Has Best Chance To Improve Quality, Cut Costs, Insurers Say

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By Sara Hansard  

Payment reform has the best chance of achieving quality improvements and cost reductions for the U.S. health care system, and the federal government needs to align its public health care programs with innovations created in the private market, health insurers said at a conference Oct. 25 sponsored by the U.S. Chamber of Commerce.

“What we need to do is align innovation in Medicare … with innovation in the private sector,” said Scott Serota, president and chief executive officer of the Blue Cross and Blue Shield Association, who gave the luncheon keynote address to the conference, titled the 1st Annual Health Care Summit: Improving Transparency and Rewarding Innovation.

“So much of what happens in the private sector can get stymied because of the volume of patients and dollars that flow through the Medicare system that it is very difficult for us to be able to reorganize and recommit … providers to a new payment model when so much of their dollars continues to flow in the old paradigm,” Serota said. “We need to open up our minds on both sides and say, how can we take that which is already working in the private sector and apply it in the Medicare sector,” he said.


WellPoint's early results with medical homes in Colorado, New Hampshire, and New York “show dramatic improvements in quality and decreases in costs.”  


--Sam Nussbaum, WellPoint

Serota outlined new programs undertaken by some Blue Cross Blue Shield (BCBS) plans to move away from traditional fee-for-service reimbursements to providers. The fee-for-service payment system, which is used in Medicare, is widely criticized as creating incentives for high volumes of medical services that have led to unsustainable cost increases and uncoordinated care and do not always improve health care quality.

BCBS Initiatives Show Promise.

BCBS plans are forming partnerships with providers to align incentives and share risk so providers are paid for coordinating the care they deliver to improve its quality, Serota said. BCBS plans are creating medical homes and accountable care models covering 10 million people in the United States, he said. The 38 BCBS plans cover about 100 million people nationwide.

Data show that the care delivery innovations are resulting in fewer unnecessary emergency room visits, fewer readmissions, shorter patient stays, better adherence to practice standards, and increased use of generic medications, Serota said.

“It is going to be payment reform that I think ultimately will make the most profound difference in the near term,” said Sam Nussbaum, executive vice president of clinical health policy and chief medical officer of WellPoint Inc., which has 34 million members.

WellPoint's early results with medical homes in Colorado, New Hampshire, and New York “show dramatic improvements in quality and decreases in costs,” Nussbaum said. “We need to have the administrative barriers, the regulatory barriers removed so that we can allow payment innovation to drive better quality care and more integrated care,” he said.

More Regulatory Efficiency Needed.

Charles Kennedy, chief executive officer of Accountable Care Solutions for Aetna Inc., also said more regulatory efficiency is necessary to overcome barriers to innovation. It frequently takes as long as 14 months to get state approvals for new health plans that incorporate accountable care organizations (ACOs), he said.


“The government cannot assume the large corporations can subsidize the fragmented, inefficient, and over-subscribed system with more taxes, fees, and cost shifting.”  


--Rick Stephens, Boeing

Kennedy's group forms ACOs with hospitals and medical groups. The Affordable Care Act authorizes the creation of ACOs, which provide incentive payments to health care providers for improving quality by better coordinating care in the Medicare program and in pediatric demonstration programs.

Kennedy, who is a member of the Centers for Medicare & Medicaid Services' Health IT Policy Committee, which crafted meaningful use rules intended to encourage doctors to adopt electronic medical records, said technology used by doctors also needs to be changed to provide data that can be used to improve care delivery rather than to document procedures used for billing.

Electronic medical records “haven't proven very successful in reducing costs or improving quality,” Kennedy said. “They are document-centric infrastructures. In other words, they were designed at a time when fee-for-service medicine was what was predominant, and to sell a system, you had to create value for the doctor,” he said.

“That doesn't really help you very much in improving the quality and efficiency of health care,” Kennedy said. “That technology needs to move away from documentation-centric, to data-centric,” he said.

But Kennedy predicted that “innovation centered around value, which is what's been missing in the health care system, may finally be here.” Aetna is finding “the traditional business model that hospitals rely on to stay in business is breaking,” he said. “They've always lost money on government programs. They've always made money on commercial programs--the traditional cost shift,” he said.

“Their ability to [shift costs] is going away because the government programs are growing, and the amount of business that they're typically seeing from commercial insurers is going down,” Kennedy said. The need for a new business model “is fundamentally driving a search for innovation.”

Employers Moving to Value-Based Programs.

Richard Stephens, senior vice president of human resources and administration for the Boeing Co., outlined the Chicago-based airline manufacturer's efforts to create incentives for the 490,000 members of its $2.5 billion-a-year health care program to be more accountable for their own health through its Well Being initiative that emphasizes wellness and preventive care.

About $1 billion of the medical costs of the company's covered population are because of factors that can be mitigated or eliminated by healthier lifestyles, he said. Annual physical exams are provided at no cost to employees, and an annual health risk assessment questionnaire is used, Stephens said.

Although plan members are not required to lose weight or quit smoking to participate in the Boeing health plan, if they are unwilling to participate in programs to address controllable conditions and change unhealthy habits, they must pay higher contributions, Stephens said.

In recent negotiations with its machinists union, which represents more than 30,000 of its employees, the company shared data about the health of members, health care costs, and the potential threat to the company's competitiveness. Boeing was able to reach an agreement that controls expenditures and helps employees be more accountable for their well-being, Stephens said. A two-and-a-half-year pilot program for 276 members with chronic conditions showed a 20 percent net cost savings primarily for reducing emergency room use and hospital stays, he said.

Private, Government Programs Should Change.

Such programs should be implemented for private and government-funded health care programs, Stephens said.

But he acknowledged that, “If the federal government tried to adopt a similar set of inducements, positive and negative, for beneficiaries to be accountable for their health and make better health choices, it would prompt howls of criticism from both sides of the political spectrum.”

“My response would be, get over it, and fast,” Stephens said. With the addition of between 40 million to 50 million people who will become health care system participants under ACA, “The government cannot assume the large corporations can subsidize the fragmented, inefficient, and over-subscribed system with more taxes, fees, and cost shifting,” he said. “Consumers will have little choice but to be accountable for their well-being and health outcome.”

At the conference, Randel Johnson, the chamber's senior vice president for labor, immigration, and employee benefits, announced that the organization has launched a website with information on ACA employer requirements and timelines--as well as penalties for not offering qualified health care--to help small and medium-size businesses figure out the pros and cons of providing coverage.

The U.S. Chamber of Commerce's website about the health care reform law is at

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