Refinancing the Healthcare Crisis

By Nathan Gunn, M.D., Jordan Bazinsky, and Deb Bradley, R.N.

The U.S. healthcare system is running on borrowed time and borrowed money. Escalating costs, excessive usage, and fragmented care delivery are just a few of the issues that threaten our nation's well-being. At the heart of the problem is a fee-for-service payment mechanism that promotes excessive spending by rewarding providers for the volume of their service rather than the quality of their outcomes.

In addition, over the past 10 years only 10 percent of medical graduates have chosen primary care, according to the American Academy of Family Physicians. A looming shortage of primary care physicians (PCP) and a lack of the services they typically provide, such as preventive measures for healthy individuals and ongoing care for the chronically ill, may accelerate disease progression and lead to a sicker — and costlier — national population.

As recent policy changes have sparked national debate and fueled a call for payment reform, more and more organizations are finding that the key to improving healthcare — and reducing the industry's trillion-dollar price to consumers — is to elevate the role of primary care providers and change how they are compensated, making primary care a more attractive choice.

Rewarding Quality over Quantity
For years, healthcare organizations have tried to contain costs and raise primary care payment with pay-for-performance (P4P) financing — additional incentive pay for quality performance. However, "performance" has always been difficult to define. Tools like customer satisfaction surveys and Healthcare Effectiveness Data and Information Set (HEDIS) measures — which can quantify clinical improvements and patient compliance — don't take cost-effectiveness metrics into account. Historically, P4P mechanisms either haven't provided enough compensation to encourage change, or they have focused disproportionately on process measures.

To improve yesterday's P4P programs, we must find ways to evaluate a doctor's ability to improve health and wellness while reducing costs. Here are three components of a cutting-edge payment mechanism that rewards doctors fairly for providing their patients with coordinated services and high-quality care:

  • appropriate risk adjustment
  • population-level analysis
  • financial and clinical outcome assessment

Applying Risk Adjustment
Risk adjustment is the process of quantifying the illness burden of a population or individual. By combining demographic and disease condition information, it is possible to predict a patient's resource usage. This information can be used to inform partial capitation payments to physicians by paying more for the patients who require complex care. The Centers for Medicare & Medicaid Services (CMS) uses this tool to allocate resources to health plans that offer Medicare Advantage plans.

A looming shortage of primary care physicians and a lack of the services they typically provide…may accelerate disease progression and lead to a sicker — and costlier — national population.

As an example, Dr. Jones treats a population that is predicted to make twice the average number of emergency room (ER) visits. But because he offers an after-hours phone line and limited weekend hours for critical issues, the actual number of ER visits for his patients is only one and a half times the average. A simple ratio shows an outcome that exceeds the expectations placed on his worse-than-average patient population. By evaluating Dr. Jones against the needs of his specific patient base rather than an aggregate benchmark such as national or regional performance, it becomes clear that he merits some level of performance bonus.

Replacing Episodic Evaluation with Population-Level Analysis
Episode-centric evaluation, a widely used method of assessing provider performance, involves aggregating homogenous episodes of care across a network. For example, analyzing all cases of sinusitis produces an average treatment cost, which is traditionally used as a benchmark to measure a physician's success. Doctors who spend below the average are considered cost-effective providers.

This method may be an appropriate way to assess specialists who repeatedly see a limited variety of case types (for example, a heart surgeon who performs hundreds of valve replacements each year). However, episode-centric evaluation is especially disadvantageous to PCPs, who typically treat fewer cases of a wider variety of problems. A benchmark based on such a small number of homogenous cases is statistically unreliable. And since credible episodic analysis also requires medical conditions with a well-defined beginning and end, it cannot address the realities of a complex patient and never suggests whether the episode could have been avoided in the first place.

Figure 1
Impact on Savings and Utilization with an Outcome-Focused Reimbursement Model

Billion-Dollar Climate and Weather Disasters

Verisk Health recently studied a not-for-profit health plan that provided bonus payment for successful outcomes. After one year, the plan realized an overall savings of $32 per member per month and significantly decreased the usage metrics.

The more appropriate analytic frame for primary care is population-level risk assessment, which includes a physician's full patient panel. Population-level analysis determines the overall disease burden that a provider manages and, in so doing, identifies the cost and usage rates and metrics that each doctor is expected to incur and, ultimately, attempt to mitigate.

Paying for Outcome, Not Process
Today, most provider profiling mechanisms and P4P initiatives evaluate process measures rather than outcome measures. To achieve high clinical standards, providers are given incentives to prescribe specific drugs or suggest certain referrals or tests.

By rewarding PCPs for their ability to slow down disease progression, reduce chronic conditions, and minimize preventable high-cost cases, we can reduce overall spending and reinvigorate primary care.

Instead, adequate primary care performance assessment must address the key metrics that determine true improvement in quality and costs. Pay-for-outcome, rather than pay-for-process, rewards providers for their ability to slow down disease progression, administer preventive measures, and keep patients out of the hospital. A true assessment of quality healthcare is a doctor's ability to mitigate cost-raising metrics such as emergency room visits, hospitalization, and advanced imaging use. Pay-for-outcome compensates doctors for keeping their patients healthy.

A New Approach to Performance Measurement Primary care doctors are the backbone of our healthcare system. Changing the traditional payment mechanism rewards them appropriately for a job well done while potentially offering significant savings. Verisk Health studied a not-for-profit health plan that provided bonus payment for successful outcomes. After one year, the plan realized an overall savings of $32 per member per month (PMPM) and significantly decreased the usage metrics as shown in Figure 1 above.

Managing escalating healthcare costs requires a fundamental shift in the way we deliver and pay for services. To be effective, change must start at the primary care level, where doctors can monitor the health and wellness of their patients while controlling factors that impact spending. By rewarding PCPs for their ability to slow down disease progression, reduce chronic conditions, and minimize preventable high-cost cases, we can reduce overall spending and reinvigorate primary care by offering attractive, fair compensation to the next generation of providers.

As changes in policy continue to shape the business of healthcare, we have the opportunity to develop and implement new financing mechanisms that will prove rewarding for both patients and providers — and profitable for all.

Nathan Gunn, M.D., is chief operating officer at Verisk Health. Jordan Bazinsky is vice president of human resources at Verisk Health. Deb Bradley, R.N., is senior vice president of client solutions at Verisk Health.