“The health care market isn’t working. There’s an imbalance of power,” Suzanne Delbanco, Ph.D., said to begin the 2021 Fall Symposium & Annual Meeting. Delbanco, former Leapfrog Group founder and president, is now the Executive Director for Catalyst for Payment Reform (CPR), an independent non-profit that helps employers implement strategies that produce high-value outcomes.
“As employers, how we buy health care needs to change,” she continued, “and working together, we’re likely to have a much greater impact than working alone.”
Suzanne then explained four current pitfalls within the healthcare marketplace.
The Health Care Marketplace Is Broken
The first being that when it comes to the end-user, the consumer, shopping is too complex. “It’s all very obscure and hard to understand and analyze. Until very recently, we haven’t even been able to ask for the price of a service.”
The second issue with the current health care marketplace is that increased hospital consolidation creates an imbalance of power between the supply and buy sides. That insufficient competition allows providers to charge higher prices. “Other than a few very select examples, like The Alliance, there are very few places where purchasers organize together to act as a force in determining how much we pay and how we pay for health care services.”
The next issue she outlined is the cost of health care itself. “Hospital prices continue to outpace inflation, and the cost has been eating into wages for years now. It impairs people to realize their dreams at their best, and at its worst, it impedes people from gaining housing or having food.”
Lastly, she states how there’s still very little to no correlation between price and quality. “As prices rise, it doesn’t mean quality isn’t getting better. Likewise, a more expensive provider isn’t guaranteed to be better quality.”
20 Years of Purchasers Improving Quality & Price
Suzanne shifted gears to explain how over the past two decades, groups like The Alliance have been able to set a solid foundation for improving price and quality in health care. She gives three examples:
– Through The LeapFrog Group, purchasers pushed for standard quality measurements to be reported publicly for the first time.
– Purchasers at CPR started tying those payments to those performance measures to improve the standard quality of care. Now, 60% of health care spending is tied to some quality measure.
– In 2011, purchasers with CPR pushed for Price transparency using reference pricing and today, the federal government has taken notice and is now pushing for widespread transparency reform.
However, Delbanco suggests that much work has yet to be done and notes that health care prices during those 20 years also drastically increased. “Higher prices account for about 75% of what’s driving the rising costs of health care.”
She also says we should temper our accomplishments knowing that patients simply can’t afford health care, and as a result, forego care altogether. “Nearly 10% of adults with commercial coverage went without care because they deemed it as unaffordable.”
High-Value Benefit Designs
Delbanco continued her presentation by acknowledging the difficulties in changing health care, but encouraging group-purchasers to band together to affect positive change. “As purchasers, it may seem like quality and payments are not in your control, but benefit design is absolutely in your control. And that’s where The Alliance comes in.”
Delbanco explained how high-value benefit design encourages patients to seek the right services. Using what she calls a “sticks-and-carrots” approach, she gives two examples of how employers can improve their plan designs:
- Remove financial barriers for employees using high-value services
- Create financial disincentives for low-value services.
“Just 22% of employers reduce their employees’ out-of-pocket costs for high-value services, while only 10% increase the costs for overused services,” she said. “These incentives and disincentives are proven to work but are simply not being utilized.”
Employers Defer to TPAs Too Often
Nationally, Delbanco claims that many purchasers have delegated too much to their TPAs/carriers.
“TPAs can get conflicted because TPAs have employer customers and providers to satisfy – who is their customer? They don’t share the purchaser’s priorities,” she continues. “They may have restrictions built into their contracts that don’t allow value-based benefit designs.”
She states how those restrictions can include anti-tiering, anti-steering, anti-transparency clauses. (All of which are initiatives The Alliance uses in their unique contracts to help employers improve their health plans.) In other words, if an employer is not part of a health-purchasing coalition like The Alliance, they may be subject to those types of contract restrictions, which, as Delbanco explained, are more common than we think.
Additionally, increased consolidation among TPAs and carriers nationally has reduced competition and the need for TPAs to innovate. “There may be strong opportunities for purchasers in direct relationships with health care providers to improve and innovate rather than going through a TPA who may have their own contracts,” she said.
“How you manage your TPA is critical. What kind of TPA they are, what they’re willing to do on your behalf, all of that is really important to analyze in terms of your interaction with the health care delivery system.”
Provider Consolidation Affects Prices
Delbanco points out that hospital consolidation – which, as we’ve covered, causes increased prices – is rising sharply. However, she goes on to explain that health systems aren’t just acquiring hospitals, but also physicians.
“Nearly 70% of physicians are employed by hospitals or corporate entities, which means only 30% of physicians are independent or free-standing from big medical groups that might have their own incentives for where a provider refers someone. The dwindling competition between professionals and hospitals is a challenge because as we’ve seen, consolidation does not lead to better quality – just higher prices.”
Payment Reform: A Work in Progress
“We haven’t gotten payment reform quite right yet, but there are so many other things we can try,” said Delbanco. She does not believe there will ever be a single right way to pay for health care, but instead would be a combination of ways.
Things like bundled payments and Medicare-tied payments – both strategies The Alliance employs – are great ways to cut waste and improve health care value, because as Delbanco explains, how we pay providers changes their behavior; without trying a mix of those strategies, fee-for-service will continue to dominate and cause further pricing increases.
“When we pay a la carte for each service, we incentivize providers to deliver more services.” She claims that only 2.5% of payments do not start with fee-for-service. “And if you include Medicare and Medicaid, only 44% of payments nationally are tied to quality.”
Delbanco doubled down on the need for payment reform innovation by giving examples of how paying differently has improved value.
“Health Affairs showed that employers using bundled payments saved everyone money.” She also cited a RAND Corporation study that showed eight employers saved 10.7% by using episodes-of-care prices for spinal fusions, joint replacement, and weight loss surgeries, while the patients saved 27.7%.
In another example, she explained how quality was also improved when using an alternative payment method: “Pacific Business Group on Health experimented with a blender payment. They paid the same amount for C sections and natural births and the results reduced C sections by 20%.”
How Much Can Employers Fix?
Delbanco laid out several ways employers can improve the health care delivery system, including:
- Adopt benefit designs
- Insist on effective payment reform
- Be willing to eliminate low-value providers
- Continue to join forces with other employers
- Negotiate with providers you use often
- Using your purchasing dollars well
- Advocate for effective policies
“Current market dynamics mean the playing field is not level. The health care marketplace is broken. And there is very little anti-trust enforcement to address these imbalances alone – so you can’t expect the government to come to your rescue” However, she does explain how states are doing innovative things to improve the health care marketplace, including:
- Federal transparency and surprise billing laws
- Rhode Island caps price increases
- California’s ban on gag clauses
- Massachusetts bans payer-provider contract provisions that prohibit steering patients or tiering providers
- Oregon’s Coordinated Care Organizations replaces traditional managed care plans
The Alliance’s Payment Reform Methodology
Delbanco then handed over her presentation to Kyle Monroe, VP of Network Strategy & Value Measurement at The Alliance, who began his portion by saying, “How we buy care matters. If you think it’s only about money, that’s simply not the case. There’s a lot more at stake here.”
He then explained that The Alliance does not use a one-size-fits-all approach, but instead takes a market-by-market approach to deploy the most advanced purchasing methods possible.
The Alliance aims to help its members pay for health care in ways that are simple, predictable transparent. You can employ complex mechanics, but you need to do so in a way that’s simple and transparent enough for people to understand.
“Suzanne talked about the prohibitive provisions some providers use in their contracts. The Alliance’s contracts don’t include anti-steering, anti-tiering, or anti-gag clauses. We don’t and won’t accept those agreements,” Monroe said.
He then extended an open offer to The Alliance members to sit down with him and discuss what’s exactly in their contracts with providers.
Reference-Based Contracting by The Alliance
Medicare’s payment methodology is the foundation of how The Alliance pays. Medicare is the largest individual purchaser of health care in the world – they pay $1 trillion annually. “Our contracts protect individuals and employers for out-of-network surprise bills by using a base rate of Medicare.”
Monroe explains how typically providers bill an arbitrary price that’s a discount from their chargemaster rate. That arbitrary number is often highly inflated and not a true measurement of the discount. Reference-based contracting avoids this.
“There are also provider-specific adjustments which begin to incorporate quality,” Monroe explained. “Medicare payments are tailored to geography, the cost of living of an area, the overhead that’s expected from the provider, etc.”
He also showed how Medicare-based contracts also account for hospital readmission rates or infection rates. “Medicare penalizes hospitals if infection or mortality rates are outside the norm. We think it’s good to know and appropriate for us to use the same metrics that the largest purchaser of health care is also using.”
Lastly, Monroe noted that over 90% of The Alliance claims are paid at a percent of Medicare. “Our contracts ranged from 175-275% of Medicare, which is much better than the state-wide average according to RAND, and what’s more, we’re continually improving those contracts.”
More Event Resources
For full event resources, including The Alliance’s Annual Business Meeting and Q&A’s with both speakers, please view the video recording and more on our Events page.