Want A Winning Health Care Solution? Change the Payment System

Changing the way health care payments are made is vital if we want to transform health care to achieve a “win-win-win” for payers, providers and patients.

Harold D. Miller shared his thoughts about “Who Will Win and Who Will Lose in Healthcare Reform? How Purchasers and Providers Can Both Succeed,” at The Alliance Annual Seminar on May 6 at the Monona Terrace in Madison.

Miller is president and CEO of the Center for Healthcare Quality and Payment Reform. He has worked at the local, state and national levels on initiatives to improve the quality of health care services and move the health care payment system “from volume to value.”

Three Approaches to Payment Reform

Miller said there are three ways to reduce health care costs without rationing or taking money away from health care providers.

• Keep patients healthy.
• Manage health without hospitalization or a high number of necessary treatments.
• Provide care that delivers efficient, successful outcomes for patients.

Those three areas represent the “huge” potential to reduce spending that exists within the current system. For example, Miller noted that between 5 and 17 percent of hospitalizations are potentially preventable; three adverse events with the potential to harm patients occur every three minutes in U.S. health care facilities; and 30 percent of health care is unnecessary and may even be harmful to some patients.

Miller recommended reducing costs by improving the care that is offered to patients, rather than by limiting the care available to patients. Yet in the current health care environment, improving care typically reduces revenue for facilities and physicians.

“The barrier is the way we pay for health care,” Miller said.

The Doctor’s Role

Currently, only one-fourth of the money spent on health care goes to doctors. In the current system primary care doctors must see more patients if they want to earn more income.

Instead, Miller argued that payers need to find a different health care payment model for primary care. Paying primary care doctors differently would allow them to respond quickly to patients who call with urgent issues, spend more time with patients who really need attention and avoid unnecessary tests and procedures.

“We don’t pay for things that are higher-value care,” Miller said. “Physicians get paid less if they do what we ask them to do. They don’t get paid at all if people stay healthy.”

Specialist physicians are paid differently in some areas but still have mismatched incentives. Specialists receive the same pay as a primary care doctor for an office visit, but receive a much higher rate of pay for procedures. For example, Miller said cardiologists receive $600 for inserting a stent while an orthopedic surgeon gets $1600 for hip surgery.

While doctors only receive one-fourth of the money spent on health care, they prescribe, control or influence care that adds up to another 56 percent of spending for insured patients.
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The Hospitals’ Share

Hospitals represent the largest and fastest growing component of health care costs. Most hospital costs are fixed and some essential services, such as labor and delivery, usually cost hospitals more money than they generate. That means hospitals must rely on a relatively small number of profitable specialties and procedures to generate income beyond fixed costs. More patients for these procedures means a bigger operating margin; fewer patients can mean operating in the red.

That gives employers the opportunity to change the marketplace with a relatively small impact in the number of patients served by a hospital.

“You only have to move a small number of patients to make hospitals pay attention,” Miller said.

Strategies that can help reduce costs and still allow hospitals to achieve an operating margin that stays in the black include:

• Accountable medical homes, where flexible, predictable payments are made for each patient, rather than for each office visit.
• Bundles and warranties, which pay a set price for an entire episode of care and shift the cost of avoidable complications to the provider, rather than the payer. This means hospitals earn more when they have fewer cost complications and deliver care at a lower cost.
• Condition-based payments, which means the provider does not lose income based on performing fewer tests or procedures.

“These true reforms are win-win-win,” Miller said.

Plan Design Changes

Payers must also change the way they design their plans to steer patients toward reforms that represent high-value choices for care.

“We have really crappy benefit designs today,” Miller said. He said the best way to encourage the use of high-value health care is to design plans that reduce or eliminate out-of-pocket costs for the patient who chooses a high-value provider.

Finally, payers must be willing to change the way they pay for care to reward value, rather than volume. Miller said one of his biggest worries is that all the payers will select different reforms and different payment models to pursue.

“When purchasers work together, change happens faster,” he said.

Miller urged employers to work together with providers to find the “win-win-win” scenarios. Obtaining reliable data about utilization and costs is critical to making these programs work.

“The best approach is for you to actually sit down and start talking to the providers,” Miller said.

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