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Money is a fundamental human motivator, a fact many healthcare payment innovation programs are using to encourage patients to choose the most efficient, highest-quality providers.
Innovations such as reference pricing and employer-designated centers of excellence get patients to consider their wallets as they decide which provider to use. In turn, these innovations aim to save money for employers and other payers.
“Over the last few years, employers have become increasingly well-educated about the tremendous variability in the quality of care as well as healthcare prices,” says Suzanne Delbanco, executive director of the Catalyst for Payment Reform in Berkeley, Calif., and co-leader of HFMA’s inaugural National Payment Innovation Summit this past February. “They have also learned that the amount they pay is rarely correlated to quality, so they want to try to make sure they get good value for every dollar they spend.”
The healthcare system in the United States cannot be described as a marketplace, says Doug Emery, program implementation leader of the Health Care Incentives Improvement Institute in Newtown, Conn., and co-leader of the HFMA summit.
“There’s never been a market in health care,” Emery says. “Instead there have been incredibly opaque systems—and feedback loops, as economics students would understand them, have not been available.”
Payment innovations that create a market atmosphere—in other words, that prompt users to consider cost when choosing their provider and services—aim to change that situation. For that to happen, participants in the system need a lot of information, meaning the opacity of the system must change to transparency. It’s no surprise, then, that one characteristic in common among many of the innovations discussed at HFMA’s summit was the need for providers to supply data about care quality and costs.
What Does Transparency Mean?
“Employers are increasingly going to insist on transparency so they understand the value they are getting for their spending,” Delbanco says. “And concurrently they are going to want to see better patient outcomes over time. The expectations are high that the healthcare system will respond.”
The following innovations, discussed at the summit, strive to prompt patients to consider value.
Certain physicians and health systems treat certain conditions better than others. Some large employers are taking note of that fact and developing programs that encourage their employees to use those providers when appropriate.
The centers of excellence concept can be driven by the provider facility itself—there are countless examples of cancer, transplant, or cardiac centers of excellence, among others created by hospitals and health systems—but the concept becomes a payment innovation when an employer or coalition of employers taps the idea as part of a strategy to optimize the value of care for its employees.
For example, the Pacific Business Group on Health in San Francisco has helped develop a centers of excellence program that is available to its 60 members and other large employers.
“This is designed for and by employers and their employees,” says Bill Kramer, executive director for national health policy at the Pacific Business Group on Health (PBGH). “Many of our members have found that most of the existing centers of excellence programs really weren’t delivering significant value. So Walmart and Lowe’s led the development of the idea of designating centers of excellence for their employees, and we took up that challenge and built a program that works best for them and other employers.”
The PBGH program, launched in 2013, identifies top-performing healthcare centers, contracts with them to provide care to group members’ employees at negotiated bundle prices, and then monitors the care to ensure it continues to meet the standards. The network includes six healthcare organizations—two of which provide joint replacement surgery and spine care, two that provide just joint replacement surgery, one that provides just spine care, and one that provides bariatrics treatment.
The six providers were chosen based on clinical outcomes reported through the Centers for Medicare & Medicaid Services and on patient-reported outcomes, which primarily are provided by the organizations themselves. In addition, PBGH evaluated the organizations’ use of clinical guidelines, such as those promulgated by specialty societies, and ensured that the programs included a shared decision-making model and good follow-up care.
“We have very strong selection criteria and high standards, and as a result our network is an elite group of providers that deliver outstanding care and have demonstrated superior results,” Kramer says.
The key to encouraging employees to use the centers is, of course, financial: Patients who use the centers are covered at 100 percent of the cost, including travel expenses for the patient and a caregiver.
“Employers have to create sufficient incentive for employees to disrupt their current care process,” says David LaMarche, administrative director of managed care contracting and business development for Virginia Mason Medical Center, Seattle, one of the centers of excellence in the PBGH program. “Benefit design is a key lever in fostering employee utilization of a centers of excellence program. If there is not a material cost advantage for the employees to use the centers of excellence, they may not seriously consider using the program. However, if the employee is faced with potentially being responsible for costs up to their maximum out-of-pocket because they did not use a centers of excellence for their surgery, depending on their income level that could be a really significant motivator.”
And paying the full cost is worth it for the employers. Their cost variability is removed, total costs are probably lower, and their employees are likely getting the best care possible—thereby speeding their return to work.
Lowe’s experience during 2014 bears this out. Among Lowe’s employees who sought joint replacements, 231 chose the appropriate center of excellence and 350 did not. None of those who chose the designated centers required discharge to a skilled nursing facility or a revision within six months, compared with 9.1 percent and 1.1 percent, respectively, of employees who did not choose the centers. The 30-day readmissions rate was similarly impressive: 0.4 percent for patients using the centers, 6.6 percent for those who did not use them.
An innovation that resembles the centers of excellence concept, but with a more local focus, is the QualityPath program developed by the Alliance, a cooperative organization based in Madison, Wis., and composed of 240 self-funded employers.
QualityPath, which was launched in 2014, identifies high-quality providers and negotiates set bundle prices, much like a centers of excellence program does. Among the requirements a provider must meet is a commitment to transparency and data sharing with employers. At the moment the QualityPath program includes only joint replacement providers, but CT and MRI will be added beginning in January. (Unlike surgical episodes that typically span a period of 90 days or more, CT and MRI services are single-day episodes. Providers who apply for QualityPath designation follow a similar process in terms of meeting quality standards, although the reimbursement is structured differently.)
Where QualityPath differs from other centers of excellence programs is in its local focus, with patients rarely traveling more than an hour or so to get to a designated provider, and in the fact that physicians and hospitals are certified in pairs.
“The designation process couples a hospital’s orthopedic programming with the surgeon’s experience and outcomes,” says Heather Oliva, director of provider relations for the Alliance. “It’s a pairing. So maybe Dr. Smith is a great surgeon and works at two hospitals, but he’s only designated for QualityPath at one hospital, because the other hospital didn’t apply to QualityPath or its program is not as robust as the other’s.”
The motivation for patients to choose a QualityPath designated provider is, again, monetary. Employers who incorporate QualityPath into their benefit plans pay for these services in full, with no deductible or coinsurance charged to the patient.
The Alliance has taken steps beyond the financial incentive to encourage patients to use QualityPath providers. For example, the program aims to inform patients about the QualityPath option as soon as it becomes apparent that they need care.
“Even with the strong financial incentives, we still find it’s important to reach that patient and communicate with them at a point when they are still open to being steered,” Oliva says. “Once they’ve had an initial consultation, the odds of steering them to a designated provider are low.”
In addition, the program employs a “patient experience manager” who guides patients through the process.
“She functions as an intermediary to help the patient get connected to a QualityPath provider,” Oliva explains. “Because if you are steered to a provider who is not in your home system, that can be scary, and you probably will have a lot of questions: ‘How will I get my records transferred? What if my doctor gets mad at me?’ That’s where the patient experience manager comes in. Her role is to make appointments, facilitate the transfer of records, and facilitate the patient’s return to the home healthcare system. She helps ease that transition and remove some of the uncertainty.”
About two dozen patients have gone through the program or are in the process of doing so, Oliva says. She expects the program to grow as more providers and lines of care are added.
“Unlike Walmart’s program, which involves traveling long distances, we’re looking at regional domestic medical tourism,” Oliva says. “Our model is recognizing and rewarding providers who are already doing business with our employers, allowing them to gain more market share with an agreed-upon performance and a fair price.”
A slightly different type of incentive to encourage patients to make value-based decisions is the concept of reference pricing, which establishes a price for a bundled procedure and reimburses the patient only up to that amount.
“The basic problem we saw was enormous variation of cost for standard hip and knee replacement, with no significant difference in quality,” says Kramer of PGBH. “These variations in cost were not justifiable or appropriate. So CalPERS [the California Public Employees Retirement System, one of the organizations in PGBH] put in place this reference-pricing program that set a threshold, in this case $30,000.”
Individuals in the CalPERS system could still choose any provider they wanted for standard hip or knee replacement, but they had to cover all costs in excess of the threshold.
“The results were very dramatic,” Kramer says. “There was a shift in patient demand from the high- to the low-price hospitals, and as a result the amount paid was dramatically less. By establishing this reference price, CalPERS reintroduced price competition. What happened was what the economists would predict: The patients migrated to the low-price hospitals.”
The three benefit designs use financial incentives to encourage patients to choose certain providers. Lower out-of-pocket costs are what drive these plans, not promises of higher quality. But patients are probably safe in assuming that the payers have done their quality evaluations and are not encouraging the use of substandard providers. After all, the payer should also prefer a good result, and the consequent continued health of the employee or dependent.
“Let’s not forget about the patients,” Delbanco says. “Health care is such a big business that we can sometimes forget about delivering quality care to individual patients. At the end of the day our purpose is to make health care more equitable, affordable, and safe. And if we don’t make things better for the patient, then it’s not really that valuable.”
And value, for all the parties involved, is what these payment innovations seek.
Ed Avis is a freelance writer based in Chicago who frequently writes about healthcare management topics.
Interviewed for this article:
Suzanne Delbanco, executive director, Catalyst for Payment Reform, Berkeley, Calif.
Doug Emery, program implementation leader, Health Care Incentives Improvement Institute, Newtown, Conn.
Bill Kramer, executive director, national health policy, Pacific Business Group on Health, San Francisco.
David LaMarche, administrative director, managed care contracting and business development, Virginia Mason Medical Center, Seattle.
Heather Oliva, director, provider relations, The Alliance, Madison, Wis.
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