A small Louisville company recently hosted national health care experts to solve critical industry challenges, including how to eliminate $850 billion of annual “low-value” care while making sure that doctors and insurers don’t go bankrupt.
The conference was unusual for its location — not on the coasts but in a downtown Louisville warehouse-like office a block from the federal courthouse — and the composition of its guests, as it brought together health care providers and health insurers.
“Usually they don’t talk to each other,” said Joshua Rosenthal, co-founder and chief scientific officer of RowdMap, the Louisville-based health care data analysis company that hosted the event.
Insurance companies and health care providers typically have an adversarial relationship, as providers try to squeeze as much money out of insurance companies as they can, while insurance companies try to withhold as much money from providers as they can.
Louisvillians recently witnessed some of the repercussions of that squabble: Local insurance giant Humana planned to merge with rival Aetna, of Hartford, Conn., in part to improve its bargaining position with health care providers. Federal authorities blocked the merger on antitrust grounds.
RowdMap’s conference brought insurers, providers and other health care experts to the table to discuss how they can make sure that changing payment models help providers, insurers and patients.
Rosenthal said that about $850 billion of health care provided every year can be categorized as low value, which means it costs a lot of money but provides the same benefits — or fewer — than less costly, less invasive care. Such low-value care might include an expensive procedure for back pain, when less expensive and less invasive physical therapy might have the same or a better long-term outcome.
In the traditional fee-for-service model, health care providers get paid depending on the number and cost of services they provide. That means providers have not had an incentive to steer patients toward the option with the greatest value, said Elizabeth Munnich, assistant professor of economics at the University of Louisville.
The system has been in place in part because figuring out how many knee surgeries a provider has performed is much easier than determining how many patients no longer have problems with their knees five years after treatment.
The current model also has not provided health care providers with lots of incentives to keep patients healthy, Munnich said. If hospitals treat a patient, they get paid. And if that patient gets readmitted for the same health problem later, it gets paid again — though some payers, including Medicare, have begun penalizing providers for re-admissions.
In a model in which hospitals get paid per patient or based on patient outcome — regardless of the type or cost of the care that is provided — hospitals have more of an incentive to keep patients out of the facility long-term, she said, because their profit margin takes a hit every time that patient returns to the facility.
Thirty cents out of every dollar spent on health care essentially goes to nothing, Rosenthal said.
“Every household on average spends $4,500 on low-value care,” he said.
That’s every year, and it amounts to about 10 percent of a typical household’s disposable income. That’s money that doesn’t get spend on food, clothing, TV sets and other things — including health care for people who desperately need it.
Changing the dynamics will help patients save money and receive better care, Rosenthal said, but it can also make insurers and health care providers more profitable.
The idea, Rosenthal, is that doctors, hospitals and clinics provide only those services that based on statistics are proven to have the best outcomes — whether that service costs a lot of money or none. You don’t want a system that pays doctors on the number of back problems they solve with back surgery, he said. You want a system that pays doctors on the number of patients who no longer have back problems five years after the diagnosis.
Once providers get paid per patient and by outcomes, patients will benefit, and, Rosenthal said, so will insurers and providers.
The pay-per-patient model also provides incentives for doctors to sit down with patients and really figure out what’s causing their health problems — rather than figuring out which medications and tests to order to treat their symptoms.
“If you actually deliver high-value care, you can make more money,” Rosenthal said.
“Everybody knows it’s the right thing to do,” he said. “The question is: Can you do it in the real world?”
Mandates, costs and analytics
The shift is occurring in part because of government mandates: The Centers for Medicare and Medicaid Services, the largest payer of health care services in the country, has required that by 2018 half of total spending will be in high-value care.
It’s part of the centers’ “better, smarter, healthier” quality strategy that employs incentives to improve care and ties payment to value of care.
Insurers, too, are pushing providers toward per-patient models, Rosenthal said. They’re telling providers that they will make more money in the new model — but they’re also telling them that if they don’t change, they will make less, because the insurers will push them out of their networks, which means patients can still see them, but they’ll incur higher out-of-pocket costs.
For health care providers those incentives are big deal, Rosenthal said. Many hospitals already have thin profit margins, and if they lose access to patients or miss out on incentive payments from the government, they may go bankrupt.
Large employers, too, are pushing for the new model, because they want lower health insurance costs and healthier employees, Rosenthal said. The Centers for Disease Control and Prevention estimates that productivity losses from worker illnesses and injuries cost U.S. employers $226 billion annually.
Munnich said that while pay-per-patient models have been around for years, they are gaining more traction now because:
- Health care costs are rising — a lot — but outcomes for patients do not seem to be changing much.
- More data and analytical capabilities are allowing for better identification of health care services that do not provide a lot of value.
Munnich said that the ideal outcome would be better care at lower costs for more patients with stable profits for insurers and providers — but getting there might be messy.
In the pay-per-patient model, more expensive diagnostics and drugs reduce a health care providers bottom line — but patients may want a particular diagnostic procedure or drug, regardless of the statistical benefit — or lack thereof.
And patients and providers may worry that the new model ends up restricting care, Munnich said.
The new model also is certainly going to reduce payments to providers, Munnich said. And while they may be able to reduce costs enough to compensate for the lower payments, they will have to do a lot of work to change the way they deliver care and to analyze lots of data to figure out which of their services provide the best value.
“That’s not an easy process,” Munnich said.
The new model likely also will do little to end squabbles between health care providers and insurers, she said. Instead of haggling about how much to pay for which service, the parties will disagree over how much to pay per patient.
Dr. Brett Oliver, chief medical information officer for Baptist Family Physicians of Scott County, said that the coming changes “will be quite disruptive to the system.”
Events like those hosted by RowdMap help ease the transition, he said.
“Organizations and practices that can begin to change now to the extent that fee for service will allow, will be ahead of the process and experience less stress when changes toward patient outcomes and quality are more fully implemented,” Oliver said.
“While there is currently a swirl of uncertainty about the medical system in the U.S., there is also great opportunity to improve care and develop much more efficient systems of delivery to improve patient care,” Oliver told Insider via email.
“I thoroughly enjoyed discussing these issues at the Institute with other like-minded folks from across the country. It is reassuring that there are others preparing to shift and improve the care of patients in the U.S.,” he said.
Michael Abate, an attorney with Kaplan & Partners who has handled health care clients, mostly payers, said that figuring out the most effective health care strategies should matter to everybody.
“We just have to be a lot smarter and be willing to redesign the payment system,” he said.
Abate helped with one of the presentation at the conference but attended primarily to listen.
He said that it was a little unusual to have RowdMap, a small Louisville-based company, hosting national health care players, but it speaks to their being on the cutting edge on a national scale.
“What these guys are doing is the future of health care,” he said.
Munnich said that consumers likely will see better long-term health outcomes, but they will see little change in their interactions with physicians, at least initially.
“It’s going to take a long time to implement,” she said.