The Alliance Roadmap to High Value Care Core Driver Two: Payment Reform

At The Alliance 2019 Annual meeting earlier this year, we talked about the four core drivers on our roadmap to high-value health care. This blog takes a more in-depth look into the second driver, payment reform, and why it is a central piece of the work and mission of The Alliance.

Many businesses have financial incentives built into their contracts that allow them to reward good business partners when they exceed expectations and pay less for services that aren’t meeting expectations. Aligning financial incentives to reward providers for high-quality care isn’t as straightforward.

Health care providers aren’t viewed as service providers, which is understandable. Health care is more than a business transaction. The culture of health care delivery has been opaque and unpredictable. And traditionally, 100% of the risk has been on purchasers. That means employers, as purchasers, have paid for waste and mistakes, even when the health care provider is at fault. This long-established history makes payment reform complicated but necessary.

The Alliance Contracting Philosophy

Achieving payment reform by creating the right incentives for care delivery is the platform upon which The Alliance was built. We’ve used our strength in numbers to pursue unique contract provisions that protected our members and their employees from unexpected charges. And we are building on that foundation to include a focus on cost and quality transparency (our first core driver) to continue the payment evolution.

Over five years ago, The Alliance launched QualityPath® as a high-value health care option for our members and offered bundled payments for a select set of services. We continue to grow these two programs, which reassure our members that they understand the prices of the care they are receiving and that it is comprehensive and coordinated.

Now, we are starting to implement contracts that use Medicare-based pricing. Medicare, the largest purchaser of health care in the US, has done the work to establish the base rates for various services and then adjust them by provider to factor in geography, patient mix, and quality metrics. Medicare-based pricing gives us the benchmark needed to pay a fair price for services, rather than focusing on a savings of total charges. Paying providers a certain percentage of Medicare not only gives us an appropriate benchmark by which we can measure relative value, it also enables employers to use plan design (another one of our four core drivers that will be featured in an upcoming blog) to incentivize employees to use lower-cost, higher-quality providers.

These efforts are moving us away from the fee-for-service model toward what is called “Total Cost of Care” contracting. In a Total Cost of Care (TCOC) model, 100% of the care provided to a patient, or a group of patients, is considered when analyzing reimbursements. That includes hospital plus non-hospital, initial versus follow-up care – quite literally all the care delivered. We are moving this direction because it will help us identify patterns of overuse and inefficiencies in the health care system that remain hidden in a fee-for-service model. It also moves the risk traditionally born by employers for inefficient care or medical errors to health systems. Its promise is to identify cost saving opportunities by system so we can reward provider partners that deliver the most cost-effective care to our employees and their families.

What Can Employers Do?

Employers that join together, like those that are members of The Alliance, can use their collective bargaining power to influence the change in health care that employers want. The Alliance’s solutions, like bundled payments, QualityPath^©, and Medicare-based pricing, are customizable to each of our member-employers’ circumstances and their appetite for achieving cost savings. Members and their advisors are encouraged to contact their Member Service Team to learn more about our efforts toward cost transparency, predictability, and control.

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