Cost and Effect Payment Reform Reverberates Through Health Care

Vincent McCorkle is fond of a quote by Dr. Elliott Fisher: “How can the best medical care in the world cost twice as much as the best medical care in the world?”

Fisher, a professor of Medicine at Dartmouth Medical School, was referring to claims made by two well-respected health systems in different regions of the U.S., both stressing the quality of their services. But independent research discovered that the cost of care at one of those two institutions was about half of the other’s cost for a certain range of treatment.

It’s a story being told even on a regional level, said McCorkle, president and CEO of the Sisters of Providence Health System, which includes Mercy Medical Center in Springfield. He used tertiary care — serious procedures like organ transplants and open-heart surgery — as an example.

“In most communities, this most expensive care happens in academic hospitals 18{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the time, but in Massachusetts, it’s 50{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the time,” said McCorkle. “That’s because we have so many academic medical centers, which, by their nature, are much more expensive without having a correlation to outcomes.”

This disparity — as well as the challenge of rising health costs at a time when Massachusetts is attempting to insure all its citizenry — has led to serious movement on Beacon Hill to come up with a way to lower and equalize costs without compromising quality.

Specifically, the Special Commission on the Health Care Payment System, a board tasked with examining how health care providers are paid in Massachusetts, has proposed replacing the current system, in which insurers pay doctors and hospitals a negotiated fee for each individual procedure or patient visit, with one that pays a lump sum for all of that patient’s care for the year.

The commission hopes that such a system, administered through a series of ‘accountability care organizations’ (more on that later), will not only curb health costs by forcing more thorough consideration of what treatments patients actually need, but will also start to equalize costs across the whole spectrum of care in Massachusetts — and, hopefully, create a framework by which all residents can access care.

“The core concept in the commission’s recommendations is something we should all be taught in childhood: how to live within a budget,” wrote Jim Sabin, a professor at Harvard Medical School who blogs about health care organizational ethics. “Unless Massachusetts gets a better grip on health care costs, its reform program will die. Having gone this far, the state doesn’t want to see its efforts crash and burn. It has concluded, correctly, that fee-for-service reimbursement must go.”

McCorkle compared health care, in one sense, to a public utility. “We’re all not-for-profits, we’re all assets of the community, and we get our revenue either from insurance paid by local businesses or Medicaid or Medicare, which is taxes,” he said. “We pose a cost to society, and we have an obligation to provide quality at the lowest possible cost.”

Administrators at Mercy are sufficiently intrigued by the commission’s idea that it has volunteered to be a pilot hospital when the proposals are first rolled out. The challenge, of course, is providing that much-sought-after lower-cost care without sacrificing quality. The architects of the plan believe it can do just that.

Toward Accountability

The heart of the state commission’s proposal is the accountable care organization (ACO), each of which would include doctors, other community-based providers, and hospitals collectively capable of providing a full range of services.

“An ACO is a group of health care providers — a physician practice, a hospital, and probably some type of tertiary care — working together to care for individuals over a period of time,” said Daniel Keenan, vice president of Government Relations for the SPHS, and a former state representative. “The ACO takes responsibility for caring for a patient for the year and, in exchange, accepts some sort of payment from the insurer to do that.”

That payment will likely be based on a variety of factors, said McCorkle, including a hospital’s average cost per episode of care for the patient’s age, gender and condition. And, importantly, it will be geared toward controlling costs.

Here’s how. According to a report on ACOs by the Dartmouth Institute for Health Policy & Clinical Practice, the model establishes a spending benchmark based on expected spending. If an ACO can improve quality of care while slowing spending growth, it collectively receives shared savings from the payers.

This model, the Dartmouth Institute argues, is well-aligned with many existing reforms, such as the medical-home model and bundled payments, and also offers greater incentive and accountability to providers to deliver efficient, coordinated care. Because the ACO members receive a share of the savings, steps like care-coordination services, wellness programs, and other approaches that achieve better outcomes at less cost result in greater reimbursement to the providers.

But cost isn’t the only factor, said Mark Fulco, vice president of Strategy and Marketing at Mercy. It’s important to note, he explained, that “the incentive of the ACO is to be the most cost-effective, but it’s also going to measure cost outcomes. You can’t not spend on care, or spend on on inferior care, because the state is looking at patient outcomes and patient satisfaction.”

In other words, “if you can spend less money and have good outcomes, there will be additional dollars. If you bring it in at financially the right level but get bad outcomes, then there are penalties.”

Thus, the ACO model, its proponents hope, will be the first that actively seeks to raise quality while lowering costs by forcing decisions on what is the best, most appropriate care — in effect stressing quality over quantity when it comes to determining a course of treatment.

“By shifting the emphasis from volume and intensity of services to incentives for efficiency and quality, ACOs provide new support for higher-value care without radically disrupting existing payments and practices,” the Dartmouth report notes. “The ACO model builds on current provider-referral patterns and offers shared-savings payments, or bonuses, to providers on the basis of quality and cost. A wide variety of provider collaborations can become ACOs, assuming that they are willing to be held accountable for overall patient care and operate within a particular payment and performance-measurement framework.”

Bumps in the Road

Despite the enthusiasm among supporters of an ACO-centric system, making the transition won’t come without logistical challenges, said Dr. Thomas Ebert, chief medical director at Health New England.

An ACO, Ebert said, “says to the insurance company, ‘we know you’ve been taking the risk, but we think there are a lot of things you don’t do particularly well. Because we provide care, we’re much closer to the patient than you are. We’re down in the trenches seeing the patient, so we’re better equipped to take care of these services.’

“But with our fragmented payment system,” he continued, “even if we want to do the right thing in reforming payment metholologies, first a lot of people have to agree on how that can be done, and it has to be with the tacit approval of government on issues of restraint of trade and anti-trust. It’s a difficult political dynamic to get to the point where we’re thinking about global payments in this way.”

Global payments are not new by any means, Ebert added. “It is to some extent what we do already as a managed-care company. We have a patient population, on which we take a global risk. We take some percentage of the premium to manage that risk, but 90{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the premium dollars go toweard providing health care services.”

What makes the ACO model different is the coordination of care required between doctors, hospitals, and other providers — a partnership that could change the way some of them typically treat patients, Ebert said.

“They’re saying, ‘we believe we can provide better care if we talk to each other as physicians, and we take responsibility for certain kinds of activities that fall beyond the scope of what happens in an individual practice.’”

For instance, in the case of disease management, the ACO would devise a program to take care of diabetic patients according to evicence-based protocols that all the providers agree on. And that might be easier said than done.

However, the way Keenan sees it, while 46 million Americans live without health insurance, fewer than 2{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of Massachusetts residents do. But it makes no sense to reform the insurance system without tackling costs. “We’ve somewhat solved the coverage problem,” he said. “Now we’ve moved onto how to pay for it.”

And, Fulco added, employers would no doubt welcome a system that lowers insurance costs across the board.

“We’re going to be more competitive from a business standpoint if we can drive the cost of health care down for the business community, which is paying a huge burden,” Fulco said. “I think that’s been one of the things making our region uncompetitive. The business community needs to embrace this; they need to understand it, ask questions, and find out how they can use some of these mechanisms to save money. They need to be part of the solution in driving costs down.”

Keenan knows it won’t be easy. “This is definitely a new model for Massachusetts, and it will take some work to get there,” he said, “but many people think this is one of the solutions to the cost element of health care reform.”

Other health care leaders across the country will no doubt have their eyes trained on Massachusetts as it once again takes a lead role in health care innovation. Many who see national health costs as an urgent problem are hoping for a successful launch.

“The ACO model is receiving significant attention among policymakers and leaders in the health care community,” the Dartmouth report concludes, “not only because of the unsustainable path on which the country now finds itself, but also because it directly focuses on what must be a key goal of the health care system: higher value.

“The model offers a promising approach for achieving this goal,” it continues. “By promoting more strategic and effective integration and care coordination, the ACO model holds substantial promise as a reform that offers a potential win-win for providers, payers, and patients alike.”

Time will tell. And across the Bay State, that time is fast coming.