Stemming the Tide The Promise — and Challenge — of Health Care Payment Reform


That word comes up repeatedly whenever legislative leaders, medical experts, and insurance administrators ponder the recent rise of health care costs in Massachusetts and across the nation. And it’s why lawmakers on Beacon Hill have produced two bills — one in the Senate, one in the House — that take dead aim at dramatically reducing those costs.

“Everyone agrees that the current path we’ve been on is unsustainable,” said Peter Straley, president of Health New England, the health plan based in Springfield with more than 120,000 members statewide. “Financially, the rate of growth in health care costs has far exceeded the country’s ability to afford it in the near term, and there needs to be a fundamental change in the way health care is delivered and financed. That’s the underpinning of all health care reform on the federal and state level.”

Unfortunately, the Bay State’s landmark insurance-reform law of 2006 — while increasing health coverage to the point that more than 98{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of its residents are covered today — did nothing to address those costs; legislators at the time understood they would have to return to that issue eventually.

Now they have, in a major way. Both the House and Senate bills aim to save between $150 billion and $160 billion over the next 15 years by moving from the current fee-for-service model toward a system based on global payments (more on that later), and both mandate that increases in health costs roughly reflect the growth rate of the gross state product. In other words, while details vary, the bills project some very similar central ideas.

“The most important goal of this legislation is to reduce the cost of health care while providing access and quality outcomes,” said Senate President Therese Murray. “Massachusetts spends 15{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} more per person on health care than the rest of the nation, and 40{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of our state budget is spent on health care.”

Rep. Steven Walsh, who chairs the Joint Committee on Health Care Financing, had similar thoughts on the House bill.

“Our current health care system rewards high-volume, expensive care that is not necessarily higher in quality,” he said. “Under this legislation, providers will be incentivized to practice the best possible care at a reasonable price, and consumers will be provided with the necessary information to actively participate in making personal health care decisions. This bill strikes the right balance in controlling our rising health care costs while improving the quality of care that our patients receive.”

The move toward global payments comes as no surprise to providers and insurers in Massachusetts. Straley said Health New England has long been anticipating the day when the fee-for-service payment model — in which providers are paid per visit or procedure, which critics say encourages unnecessary treatments — would be outmoded.

“What we have done, and what we’ve been doing for a number of years, is really focus on changing how health care is delivered in the four counties of Western Mass.,” he told HCN. “We’re working with our providers, engaging them in redesigning how they practice.”

The building block of this concept is the ’patient-centered medical home,’ also known as an ’accountable-care organization,’ or ACO. Under this model, a diverse group of providers — doctors, nurses, specialists, therapists, nutritionists, etc. — are assigned to a patient and are responsible for his or her care year-round. In turn, they are paid a set fee for providing that care.

The payment structure discourages superfluous procedures, but built-in quality metrics simultaneously guard against undertreatment because, if a patient’s condition worsens due to inadequate care, no one gets paid.

“We think every one of our members should have a personal relationship with a group of primary-care providers who know them, know their issues, and help them manage their health and their wellness,” Straley said. “Then, if they need to see a specialist or have tests done, they can go to this trusted team and get help getting the right things done at the right time — instead of shopping around for an MRI or lab tests with no one coordinating it or looking out for them.”

Mercy Medical Center has long been an advocate for ACOs, and it has filed to be a Medicare Shared Savings Program ACO next year, an effort by Medicare to introduce this model of care across large groups of patients, said Daniel Moen, president and CEO of the Sisters of Providence Health System.

“We think the future is going toward this type of payment and away from fee-for-service,” he told HCN. “We’re really supportive of health payment reform. We know that, in the long run, the current rate of rising health care premiums and health care costs is really unsustainable.”

There’s that word again. This month, HCN examines how legislators intend to bring the state’s vibrant but costly medical industry back to sustainability, and why it’s critical to get the details right.

One in Seven

While it’s difficult to imagine anyone arguing for the fiscal status quo in health care, leaders in the field caution against rash, sweeping changes that could impact jobs; after all, one out of every seven jobs in Massachusetts is at least tangentially related to health care.

“The question becomes, how far and how fast do we try to take this system change on?” Moen said. “We have to be careful with this. Health care is such a huge part of the employment arena and the economy for Massachusetts; we have 3,200 employees across our health system alone. So, the governor and the Senate and the House all have different views on stemming the rate of rising health care costs, but we need to make sure it’s done in a reasonable way.”

The competing pieces of legislation, which are expected to be consolidated into one bill in committee this summer, differ in a number of ways. Specifically, the House bill:

  • Sets a goal for health care cost growth of gross state product minus 0.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} within three years;
  • Improves information sharing, so patients have access to their records and don’t have duplicative tests;
  • Requires disclosure to patients of the costs of their care and levies a surcharge on providers who are unable to justify costs that are 20{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} above average; and
  • Puts a premium on prevention and wellness, as businesses are eligible for a $10,000 tax credit by establishing a wellness program.

Meanwhile, the Senate’s version of the legislation:

  • Sets a goal for health care cost growth of gross state product plus 0.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} within three years and equal to the state’s GSP beginning in 2016;
  • Requires the state’s Medicaid program, its employee health care program, and all other state-funded health care programs to transition to new payment methodologies by 2014;
  • Establishes a certification process for provider systems dedicated to cost growth reduction, quality improvement, and patient protection. These so-called ’Beacon ACOs’ would receive a contracting preference in state-funded health care programs;
  • Establishes independent oversight of the medical industry by reorganizing the existing Division of Health Care Finance and Policy to become an independent state agency and serve as the designated health care data collection, dissemination, and analysis arm of the Commonwealth;
  • Invests $100 million over the next five years in community-based prevention and wellness efforts, expanding an existing wellness incentive program for small businesses and requiring the Department of Public Health to develop a guide for wellness programs for businesses;
  • Expands on the Health Care Quality and Cost Containment bill of 2008, which dedicated $100 million over five years to accelerating the statewide adoption of electronic health records by 2015;
  • Expands an existing workforce loan-forgiveness program to include behavioral and mental health providers;
  •  Steamlines certain health care processes, such as developing standard prior-authorization forms, which would be available electronically, so that providers would use only one form for all payers, as well as designating a single agency as the secure data repository for all health care information reported to and collected by the state; and
  • Develops a process to track price variation among different health care providers over time and establishes a special commission to determine the factors contributing to price variation among providers.

Meanwhile, both bills, to varying degrees, would:

  • Establish a trust fund to invest in the training, education, and skill-development programs necessary to help workers succeed in the health care system of the future;
  •  Expand the role of physician assistants and nurse practitioners to act as primary care providers;
  • Reduce malpractice costs by allowing providers to offer an apology to a wronged patient without liability; the Senate version also mandates a 180-day ’cooling-off’ period before filing suit.

Unchecked, proponents of the competing bills note, health spending in the Commonwealth is projected to double from 2009 to 2020, outpacing both inflation and growth in the overall economy.

The Senate’s bill, Murray said, “will reel in health care costs without harming our number-one industry or patient care, and remove a major roadblock to long-term job growth and essential investments in education and transportation.”

Not So Fast

Straley and Moen both say the proposed legislation reflects what has already been happening to some degree locally.

“We’re already seeing costs moderate across the system,” Moen said. “Certainly the economy has had an impact on health care and every other sector of the economy, but even absent that, because of the pressure on premiums, employers have been looking for alternatives anyway. Insurers are trying to respond to that with some innovative products.

“I was talking to an HMO president a few months ago,” he continued, “and he said their fastest-growing products are tiered products, where employees are rewarded for making cost-effective decisions about where to get their health care. It’s a small piece of what they do, but it’s an example of employers looking for different plans designed to keep costs down and keep quality up.”

Added Straley, “we have been investing and moving as fast as we can to retool how the delivery system works, so at the point the economy starts to turn back up again, health care spending doesn’t follow it.”

The economy, he explained, created a temporary slowdown in the acceleration of health care costs, but that isn’t expected to last once the outlook improves — unless radical changes are made.

“That’s why we invest in medical homes and information technology,” said Straley. “We’ve been investing in these things for four or five years, and we’re just starting to show that they work.”

He stressed, however, that any final mandates for payment reform must give providers the resources to succeed and make a good living.

“Most people believe, and I tend to be on this wavelength as well, that we can’t just tell physicians how to do it; we have to link it to how they’re paid,” he said. “If I want a physician’s office to take care of me, they should be paid whether I’m sick or not; they can’t be paid only when I go in and get tests. They should get paid on a regular basis to be there when I need them.”

In addition, he said, physicians need to practice differently by delegating routine matters to their assistants — as mentioned earlier, a component of both the House and Senate bills.

Straley said the Legislature’s goal of lowering the rate of growth in health costs to around the gross state product is achievable over the long term, but could cause some pain in the short term.

“I do think this is a worthy goal to shoot for,” he told HCN, “but what we on the insurance side of the industry hope is that they’ll think of this as a plane coming in for a landing. We want to come in on a nice, even glide and not act like we’re on the ground when we’re still 10,000 feet up.

“The goal is to land this puppy at the gross state product,” he continued, “and we’re going twice as fast right now. We have to slow it down, and in order for that to happen, we have to have teams of providers with aligned incentives, and that’s where global payments come in. We’re all pointing toward the same landing right now, and we’re getting there, but we’re not there yet.”

Taking the Plunge

The benefits of bringing down health care costs can be quantified in numerous ways — including the impact on individual pocketbooks.

For instance, a recent report commissioned by the Blue Cross Blue Shield of Massachusetts Foundation and conducted by MIT economist Jonathan Gruber determined that, if medical costs in the Commonwealth grow more slowly than projected, workers could pocket as much as an extra $9,200 in take-home pay between 2011 and 2019. Over the same period, Massachusetts employers could save up to $34.5 billion in premium payments.

In fact, lowering the premium growth rate by just one percentage point below current trends would save $7.8 billion in employee take-home pay, or about $2,000 per worker, over the next eight years, while reducing employer-sponsored insurance spending by $10 billion.

On the other hand, the report notes, if action is not taken to lower costs, “health-insurance coverage will erode, workers’ wages will stagnate, and employers will have fewer resources to invest in growing and strengthening the Massachusetts economy.”

Moen expressed confidence that the Legislature’s goals can be reached. “But it’s not like you can turn the health care system on a dime,” he noted. “There has to be a reasonable time frame for more and more people to be brought into these ACO types of organizations.”

Although Massachusetts has been a national leader in the development of concepts like the patient-centered medical home, Straley said, reaching current cost goals remains a daunting task.

“If we think of it as an Olympic dive, with a difficulty between 1 and 5, this is a 5,” he told HCN. “But I feel we’re not just reacting it it, but taking proactive steps to push us in the right direction. I think everyone is trying to get to the same place, so I think this [legislation] is all very well-intentioned. Where the rubber meets the road is what gets enacted and when.”

After all, Moen said, “nobody wants quality and access to slip. It’s a bit of a balancing act, and as we go forward, we need to make sure we get system change without adversely impacting health care across the state.”

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