•  value-based payments will come into the US in the next 5-10 years
• payments will be based on conditions, not treatments
• e.g. current c-section rates are highly variable, due to the way fees are paid, not their actual value

http://www.healthleadersmedia.com/print/COM-301451/Building-the-Business-Case-for-ValueBased-Care

Building the Business Case for Value-Based Care

John Commins, for HealthLeaders Media , February 26, 2014

Harold D. Miller, president and CEO of the Center for Healthcare Quality and Payment Reform, discusses a fundamental barrier to shifting payment models in healthcare: Some providers mistakenly think all they have to do is tweak existing fee-for-service billing structures without understanding what drives costs in the underlying payment system.

Harold D. Miller, President and CEO Center for Healthcare Quality and Payment Reform

The shift away from volume-based, fee-for-service billing towards value-based reimbursements is gaining momentum and will be largely in place over the next few years. And yet a surprising number of healthcare providers really don’t grasp the details of how value-based reimbursements work.

Harold D. Miller, president and CEO of the non-profit Center for Healthcare Quality and Payment Reform, says many providers mistakenly believe that all they have to do is tweak existing fee-for-service billing structures without identifying potential savings or understanding what drives costs in the underlying payment system.

Miller, the author of a Robert Wood Johnson Foundation-funded report called Making the Business Care for Payment and Delivery Reform, spoke with me this week about what providers must do to build an effective business case for value-based care. The following is an edited transcript.

HLM: Where are we on the fee-for-service/value-based care timeline?

Miller: It could be the dominant model within the next five to 10 years, but it is a matter of how quickly physicians and in particular physicians in hospitals meet with the purchasers of care— the employers— to work that out. It’s about how soon both side come together and create the win, win, win that is good for patients, providers, and purchasers.

HLM: What are the stumbling blocks on the road to value-based care?

Miller: Most health plans and Medicare are trying to change the way care is delivered and reduce costs by piling on pay for performance and shared savings on top of fee-for-service. The problem is that if you don’t change the underlying payment system, you don’t change the incentives and the barriers that it creates.

For example, one of the best ways to keep people with chronic disease healthier and out of the hospital is for a physician practice to hire a nurse to educate and encourage patients to call when they have a problem. The problem is that doctors don’t get paid for nurses and they don’t get paid for answering phone calls. So practices are forced to lose money under fee-for-service to deliver better care, even though it would actually save money by keeping the patients out of the hospital.

HLM: Is value-based healthcare a particularly challenging sector?

Miller: Every patient is different, but on the other hand, how do health insurance companies operate? The law of large numbers says that on average, patients are fairly similar. You don’t have to deliver the exact same treatment to everybody to estimate on average what it is going to be like.

If you get the unusually expensive case—the patient who is an outlier with unique health problems— that is what insurance is for.

On the other hand, saying ‘We shouldn’t be giving an MRI to everyone who comes in with lower back pain. Most of them should probably go to physical therapy first.’ That is something you can do across a broad number of patients. That is going to save money on average and probably be better for the patients.

HLM: Is there common ground for fee-for-service and value-based models that providers can build on?

Miller: A lot of the payment reforms that are being done actually build on fee-for-service. The idea is you don’t just leave it in place and try to pile something on top. The problem with fee-for-service now is that it says you get paid the exact same amount to do something whether you do it well or poorly and whether or not [or whether] there are complications or infections that occur. And in fact you may get paid more.

But you don’t fix fee-for-service by sticking little penalties or bonuses on top. You have to change the fundamental way it is delivered.

For example, for patients who have health problems, we are looking at payments based on the patient’s condition and not based on exactly the procedure you used. A good example is delivering a baby. You get paid more to do a caesarian section than you get paid than a vaginal delivery. Yet the vaginal delivery takes longer, and is better for the mother and the baby.

So why do we now have a 33% C-section rate in the country? Because the fees we pay are not based on the actual value.

HLM: Why does value-based care create so much unease among many providers?

Miller: A lot of the anxiety comes because people don’t have the data. You have to have access to good data and in most cases healthcare providers can’t do that. Medicare has only just recently started to release data, so that someone could actually do the kind of analysis that I recommend in my report.

Most health plans treat their data as a proprietary secret, but there are a number of communities around the country that have multi-payer claims databases where people can do these kinds of analyses.

HLM: Why should providers welcome the switch to value-based care?

Miller: You could actually do better in a value-based payment model. People have the perception that somehow it is going to be worse, but the sooner you get into it the better you may be able to do because you are able to capture a lot of the value out there now that isn’t being captured.

Rather than staying in fee-for-service and hoping you may get a small increase in fees or that you don’t get a cut in fees, it’s better to ask ‘Can I redesign care in a way that would allow me to be paid significantly more?’

Medicare has done a demonstration that has been operational now for several years called theAcute Care Episode Demonstration that bundled together hospital and physician payments for orthopedic and cardiac procedures and the physicians were able to earn up to 25% more than their standard fee-for-service payments by being able to redesign care and reduce the costs. That is far more of an increase in pay quickly than you could ever get by simply staying in the existing fee-for-service model.

HLM: Who should be at the table when providers build the business case for value-based care?

Miller: Step No. 1 is changing the way care is delivered. It is the physicians on the front lines who have to say ‘Where do we think we are actually doing too much of something we shouldn’t do or that we are not providing good care to the patients?’

Then you have to get the COO or the CFO to say ‘Let’s work the numbers.’ Typically, you don’t find those two parts of organizations working together. Doing spreadsheets is not the physicians’ skill and providing care is not the CFO’s skill. But if you can get them to come together, that is where the magic happens.

You say to physicians ‘Where do you think you could redesign care if somebody gave you the flexibility to be paid differently, to be paid for things that you aren’t being paid for today?’ When I talk to physicians, they all have ideas but nobody asks them.

The typical approach is that physicians say ‘Pay me for these things that you don’t pay me for today.’ The health plan, Medicare, employers or whomever says, ‘Wait a minute. That will increase costs if you are going to be paid for something new.’ If you think it is going to be better, run the numbers to see if it actually will save money. What will you do less of and what will that save?

Get everybody in the room. Get their ideas. Figure out which subset appears to be the most promising. Do the detail work and go to payers to put it in place. If you can show success then that encourages people to do more. Not every case will it be a savings proposition.

Which of those things is there really a business case for, and if there seems to be a business case then let’s do a finer analysis to show that and take it to the payers to say ‘how about a deal here?’ Even if you can’t get the perfect data, using approximate data to at least see if it looks like a business case then tells you which things to focus on.

HLM: How soon could a value-based model see a return on investment?

Miller: For many of these things, the savings can happen very quickly. A lot of what has been done in healthcare has been desirable, but has a long-term payoff. There is a lot of focus on better management of diabetes and hypertension; all very desirable but it doesn’t save a lot of money this year.

On the other hand, if you focus on people going unnecessarily to the emergency room and getting unnecessary tests and [you] figure out how to redesign that care, you save money immediately because you are avoiding the unnecessary care. Thirty day re-admissions are a perfect example.

HLM: Who do providers speak with on the payer side?

Miller: The focus will differ. Medicare doesn’t have a whole lot of interest in maternity care, whereas for businesses and Medicaid maternity care is in many cases their biggest expenditures. Everyone is interested in chronic disease. The distinction I make is between the purchaser and the payer. The purchaser in commercial insurance is the employer.

In fact, 60% of commercially insured employees in the country are in self-insured employer plans. The deal you are working out is actually with the employer and not the health plan. All the health plan is doing is processing claims. One of the challenges for commercial health plans is that value-based isn’t necessarily a good business proposition for them. They may have to incur costs to change the payment system, but the savings don’t go to them, they go back to their self-insured accounts.

HLM: What influences will insurance exchanges and consumer-driven healthcare play in the business case for value-based care?

Miller: It could be a potential advantage if different provider organizations get beyond this fairly narrow shared-savings model to the point where they are actually able to take accountability for populations of patients and can price that.

They could go on the exchange and allow people to sign up for this ACO and pick a primary care physician there and work with the coordinated set of docs at a lower cost and higher quality than simply picking a generic health plan. It’s kind of halfway between the traditional HMO/PPO models. You are picking who you want to lead your care. You don’t necessarily have to be limited to once set of docs or have a gatekeeper for everything.

John Commins is a senior editor with HealthLeaders Media. 

•  One of the most widespread initiatives comes from insurers themselves—who say they are eager to help plan members and employers cut their health-care bills. Some 98% of health plans now offer their members some online tool that lets them calculate their out-of-pocket costs, according to a survey by Catalyst for Payment Reform. A few let users compare different providers in the same network.
• UnitedHealth Group Inc. has one of the most extensive tools. More than 21 million members can log into myHealthcare Cost Estimator and compare the negotiated rates for more than 500 individual services at in-network providers across the country, as well as their individual out-of-pocket costs for each one. Hundreds of thousands of plan members have used the tool since it launched in 2012, the company says.
• In one pilot project, the California Public Employees’ Retirement System, found prices for hip and knee replacements ranging from $15,000 to $110,000 in the San Francisco area. It agreed to pay up to $30,000, and some 40 hospitals cut their prices to match. Such initiatives have helped Calpers save nearly $3 million in the past two years, one study found.
• A growing body of research has found that there is no clear connection between price and outcomes such as mortality rates, blood clots, bed sores and hospital readmission. “Until you break that connection in peoples’ minds, there is a perverse incentive for hospitals and health systems to continue to raise prices,” Ms. Dentzer says.

http://online.wsj.com/news/articles/SB10001424052702303650204579375242842086688

How to Bring the Price of Health Care Into the Open

By MELINDA BECK
Updated Feb. 23, 2014 5:03 p.m. ET

It’s a simple idea, but a radical one. Let people know in advance how much health care will cost them—and whether they can find a better deal somewhere else.

With outrage growing over incomprehensible medical bills and patients facing a higher share of the costs, momentum is building for efforts to do just that. Price transparency, as it is known, is common in most industries but rare in health care, where “charges,” “prices,” “rates” and “payments” all have different meanings and bear little relation to actual costs.

Unlike other industries, prices for health care can vary dramatically depending on who’s paying. The list prices for hospital stays and doctor visits are often just opening bids that insurers negotiate down. The deals insurers and providers strike are often proprietary, making comparisons difficult. Even doctors are generally clueless about what the tests, drugs and specialists they recommend will cost patients.

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Princeton economist Uwe Reinhardt likens using the U.S. health-care system to shopping in a department store blindfolded and months later being handed a statement that says, “Pay this amount.”

The price-transparency movement aims to lift that veil of secrecy and empower patients and other payers to be smarter health-care consumers. Federal and state agencies are gathering reams of price information from doctors and hospitals and posting them for the public. Health plans are offering online tools that let members calculate their out-of-pocket costs. Startup companies are ferreting out and publishing the long-secret rates that providers negotiate with insurers.

When consumers can compare prices for doctor visits, hospital stays and other services, the theory goes, market competition will help keep them down.

An Incentive to Change

This is new territory for health care. Doctors and hospitals have rarely competed on cost. Third-party payers still foot the bulk of the bills, and many players in the health-care industry benefit from keeping their costs and profit margins murky.

“The time for transparency has clearly arrived—but is everybody ready to have real pricing power brought to bear in a way that could destabilize the health-care sector?” asks Susan Dentzer, a senior policy adviser at the Robert Wood Johnson Foundation. “It means upsetting a lot of apple carts.”

The pressure to change is rising, however. Experts expect consumers to be much more price-sensitive as they shoulder a growing proportion of health costs themselves. Last year, 38% of Americans with employer-sponsored insurance had a deductible of $1,000 or more—up from 10% in 2006, according to the Kaiser Family Foundation.

Silver and bronze plans created by the Affordable Care Act carry average family deductibles of $6,000 and $10,386, respectively. More than half of bronze plans also require patients to pay 30% of doctors’ fees, according to health-information site HealthPocket.com. “Most of us still don’t have much financial incentive to shop around for cheaper care,” says Suzanne Delbanco, executive director of Catalyst for Payment Reform, a nonprofit that works on behalf of employers. “That’s changing rapidly.”

 

Efforts to raise transparency are coming from a number of corners, including the Obama administration. But some have mainly shown how confusing health-care pricing is.

Hoping to shine a light on the variations in hospital charges, the Centers for Medicare and Medicaid Services, or CMS, grabbed headlines last May when it released a list of the average prices 3,300 U.S. hospitals charged Medicare for the 100 most common inpatient services during 2011.

Huge Differences

The variations were stunning. The average charge for joint-replacement surgery, for example, ranged from $5,300 in Ada, Okla., to $223,000 in Monterey Park, Calif. Even in the same city, there were huge swings. The charge for treating an episode of heart failure was $9,000 in one hospital in Jackson, Miss., and $51,000 in another.

A month later, CMS released a second database comparing average hospital charges for 30 common outpatient procedures, and the variations were just as great. A hospital in Pennington, N.J., charged $3,036 for a diagnostic and screening ultrasound, while one in Bronx, N.Y., billed just $88.

Many hospital executives dismiss those list prices—also known as chargemaster prices—as meaningless and misleading, since few patients ever pay them. Commercial insurers often use them as a starting point for negotiating big discounts. Medicare itself pays hospitals predetermined rates based on diagnoses, regardless of what they charge.

Industry experts say list prices vary so much in part because hospitals use different accounting methods and have different patient populations. List prices also reflect all the costs of running a hospital, including keeping ERs, burn units and other costly services running 24 hours a day. What’s more, many hospital executives say they have to mark up charges for privately insured patients because Medicare and Medicaid reimbursements don’t cover those patients’ cost—a shortfall the American Hospital Association puts at $46 billion nationwide last year.

Hospitals “are absolutely in favor of price transparency,” says AHA president Rich Umbdenstock, and they support a bill in Congress that would let individual states determine price-disclosure rules. He also says hospitals would like to end the confusing chargemaster and cost-shifting practices, but they can’t do it without big changes in payment practices by both the government and the insurance industry.

“If this were in our power to solve, we would have done it a long time ago,” Mr. Umbdenstock says. “But it’s not something we can do on our own.”

Shining a Light

Jonathan Blum, deputy administrator of the CMS, counters that chargemaster prices do matter, particularly to uninsured patients who sometimes get stuck with those inflated bills. He says the administration’s goal was to spark discussion about price variations, and that “a tremendous number” of visitors had downloaded the data.

“We’ve discovered that oftentimes, even health-care providers don’t fully realize the extent of those variations,” he says. “Our hypothesis is that a lot of the variations aren’t warranted.”

The prices insurers negotiate with hospitals and doctors are more important to consumers, experts say. Traditionally, those rates have been proprietary. Neither insurers nor providers want competitors and other business partners to know what they’re willing to settle for. Some contracts include gag clauses barring disclosure.

But states are increasingly requiring payers and providers to reveal that information. A few states specifically outlaw gag clauses in health-care contracts. Sixteen states have “all-payer claims databases” designed to collect insurance claims data and use it to monitor trends and identify high- and low-price providers. And some 38 states now require hospitals to report at least some pricing information, although only two—Massachusetts and New Hampshire—rated an “A” in Catalyst for Payment Reform’s annual report card for making the information accessible and usable by patients.

Meanwhile, entrepreneurs are sleuthing out negotiated rates from claims data and making them available to consumers and employers in various forms. Healthcare Bluebook aims to do for health care what the Kelley Blue Book does for used cars: It analyzes negotiated rates paid for thousands of medical services in every ZIP Code—supplied by employers and other clients—and posts what it considers a “fair” price for each so consumers can evaluate what they’re being charged.

Bluebook’s founder and CEO, Jeffrey Rice, says the rates insurers pay for, say, an MRI or knee surgery can vary as much as chargemaster prices do, particularly if a local hospital is dominant or prestigious.

“The difference may not be much between Nashville and Chicago—the big difference may be just down the block,” he says.

Mr. Rice says the employers Healthcare Bluebook works with have saved as much as 12% on their health-care costs by making price information available to their employees, with most savings coming on imaging studies, endoscopies, cardiac testing and other outpatient procedures.

Another service, PricingHealthcare.com, asks users to anonymously supply information from their own medical bills to help it amass the list prices, cash prices and negotiated rates for common procedures. It currently shows rates for some 500 procedures in 11 states. Founder Randy Cox says some providers are furious when asked what their rates are, while others are eager to have their entire price list posted. “I get calls from hospital CEOs who know people are concerned about price and think this is an opportunity for their business,” he says.

A Hand From Insurers

One of the most widespread initiatives comes from insurers themselves—who say they are eager to help plan members and employers cut their health-care bills. Some 98% of health plans now offer their members some online tool that lets them calculate their out-of-pocket costs, according to a survey by Catalyst for Payment Reform. A few let users compare different providers in the same network.

UnitedHealth Group Inc. has one of the most extensive tools. More than 21 million members can log into myHealthcare Cost Estimator and compare the negotiated rates for more than 500 individual services at in-network providers across the country, as well as their individual out-of-pocket costs for each one. Hundreds of thousands of plan members have used the tool since it launched in 2012, the company says.

Nationwide, only about 2% of health-plan members who have access to such tools have used them, according to Catalyst for Payment Reform. But Ms. Delbanco expects that number to rise as more patients become aware of the tools and see their out-of-pocket costs growing.

Proponents say it is too early to tell how much impact transparency efforts will have on costs overall. California has required hospitals to make their chargemaster prices public since 2003, with little effect on prices.

But one approach called “reference pricing” has yielded some savings. Where local prices differ substantially for a service like a colonoscopy, an insurer publishes a list of providers’ rates and agrees to pay a set amount. If patients choose a provider that charges more, they must pay the difference themselves.

In one pilot project, the California Public Employees’ Retirement System, found prices for hip and knee replacements ranging from $15,000 to $110,000 in the San Francisco area. It agreed to pay up to $30,000, and some 40 hospitals cut their prices to match. Such initiatives have helped Calpers save nearly $3 million in the past two years, one study found.

What Comes Next?

Experts say that as consumers increasingly compare prices, it’s critical to provide them with information about quality of care as well—otherwise, they might assume high cost equates with high quality.

A growing body of research has found that there is no clear connection between price and outcomes such as mortality rates, blood clots, bed sores and hospital readmission. “Until you break that connection in peoples’ minds, there is a perverse incentive for hospitals and health systems to continue to raise prices,” Ms. Dentzer says.

Indeed, critics fear that some price-transparency efforts could backfire and spur higher prices: If providers see that insurers are paying competitors more, they might hold out for higher rates, and insurers might be less inclined to give some providers favorable deals.

Some skeptics think that without fundamental changes in how health care is priced and paid for, transparency may confuse consumers more than it empowers them.

But there’s a growing consensus that while price transparency alone cannot transform the health-care system, it is necessary to help reveal which costs are excessive and let consumers make better-informed choices.

“At the end of the day, it’s our money,” Ms. Delbanco says. “We have a right to know what our health care is going to cost.”

Ms. Beck covers health care and writes The Wall Street Journal’s Health Journal column. She can be reached at melinda.beck@wsj.com.