A Case Of “It Sounds Too Good To All Be True”

Submitted by francois.debrantes@hci3.org on Friday, October 3, 2014 - 02:13

If it sounds too good to be true, it probably is – Last year, in its national scorecard on the use of "value-based" payment models, Catalyst for Payment Reform reported that health plans paid 90 cents of every premium dollar as fee-for-service. This year, the number plummeted to 60 cents. In other words, health plans are claiming that in a year's time they have re-contracted with physicians and hospitals across their networks in such a way that, today, 40 cents of every premium dollar is something else than fee-for-service. Of course, that sounds too good to be true and is also quite at odds with what providers report. The truth is that there certainly has been progress, but that the vast majority of health care services continue to be paid FFS. It's also true that some of those payments are tied to other formulas. For example, while a health system might be paid FFS on a day-to-day basis, there is an underlying formula that creates some financial risk/reward. Typically these formulas have been "upside only", creating a bonus if total costs come under budget. Also, these formulas have been timid, with risk corridors that are not greater than 5-6%, and oftentimes involve an inadequate number of attributed plan members to reliably determine whether the provider came over or under budget. What all this demonstrates is that incentives work, sometimes too well.

What this means to you – In the rush to appease employers who are asking for their third party administrators to engage in new payment models, plans have responded and, to an extent, focused on the measure and how they can boost it. That's not any different than what some providers have done in responding to some quality measures or the threat of financial penalties, and reminds us that measurement in health care often leads to overreach. That doesn't mean we should exempt payers or providers from improving the affordability and quality of care, but we must constantly re-calibrate what is being measures to avoid unintended consequences. In the case of health plans, what's most important is to gauge the actual amount of premium dollars that are paid out (or in) as a net result of the risk-based contracts….in other words, just like with provider measurement, it's the outcome that matters. Presumably, if a plan is paying out rewards under risk contracts, then total costs for those contracts should have moderated. If not, they might have some explaining to do about the effectiveness of the risk arrangements. And the time to switch the measurement focus is now, as we are reminded this week again about the perverse incentives of the fee for service system. The release by CMS of the payoffs to clinicians from pharmaceutical and medical device manufacturers, and the evidence of price gouging by consolidating providers, illustrate how warped health care payment has been. It has to change, and we should all know by now that when vendors in health care say that their payments to providers are to advance the science of medicine, or when consolidating providers claim that they need to meet the demands of greater accountability, or when health plans claim that 40 cents and rising of every premium dollar is in value-based arrangements, it's too good to all be true.