New types of payment models have popped up recently, but payers have been slow to take notice. Here's why they need to take notice.
Big changes are stirring in the nation’s private healthcare insurance market, and as a result, primary care physicians (PCPs) will need to be prepared for payers to drive harder bargains than ever before when it comes to reimbursement rates.
Behind the changes is the near-universal recognition of the need to rein in spiraling healthcare costs and improve the quality of care and patient outcomes. The way to achieve those goals, most healthcare policy experts agree, is to find alternatives to the traditional fee-for-service method of reimbursing physicians. Many of the provisions of the Affordable Care Act (ACA) are designed to encourage experimentation with new forms of care delivery and payments that provide financial incentives for improving outcomes and lowering costs.
What does it all mean for PCPs? Quite simply, you will need to bring more evidence of your value to payers-in the form of numbers of patients, proof of the quality of care you provide, or both-to your negotiations with payers. The alternative will be seeing your payments slashed or exclusion from a provider’s network altogether.
“Our experience with provider organizations is that payers need a good reason to negotiate with them,” says Judy Bee, a medical practice consultant with Practice Performance Group in La Jolla, California, and a Medical Economics editorial consultant. “By good reason. You have a huge book of business [the payer] would lose, you have the best utilization of ancillary services so you don’t generate high costs to them, or you are so well-known in the community that you can’t be left out.”
Adds Mark Dietrich, CPA, APV, a Framingham, Massachusetts-based healthcare consultant and coauthor of The Financial Professional’s Guide to Healthcare Reform, “If you look across our economy, you see fewer and fewer players in the [payer] market, but they are bigger and bigger. There used to be 70 or 80 independent [Blue Cross and Blue Shield] plans, for example, but most of them have been swallowed up by Anthem. So the more patients you have, the higher amount you’re going to be able claim from those payers.”
A 2012 study of fee-for-service alternatives conducted by America’s Health Insurance Plans (AHIP), the trade association representing the health insurance industry, found that they generally take one of three forms-Patient-Centered Medical Homes (PCMHs), accountable care organizations (ACOs), or bundled/episode-based payments.
Other alternative methods gaining in popularity include value-based benefit plans, which provide incentives for patients to use treatments and medications that have been proven effective in treating their particular disease or conditions, and consumer-directed health plans, which are low-premium plans that pair high deductibles with individual health savings accounts.
“There’s a tremendous amount of innovation taking place in this [payment] arena now,” says Robert Zirkelbach, vice president of strategic communications for AHIP. “We’re seeing both providers and payers experimenting with a whole host of different types of arrangements to see what works best and in what settings.”
Zirkelbach says AHIP has been hosting a series of “shared accountability summits” on payment reform in recent years, during which representatives of health plans and their provider partners discuss how they have structured their relationships and the savings they have achieved. (See “Patient-Centered Medical Homes and accountable care organizations: A closer look.”)
Payers’ enthusiasm for experimenting with new delivery methods is evident in a recent poll of health insurance executives by HealthEdge, a software developer for the healthcare payer market. Nearly 69% of respondents said their organizations planned to participate in or support an ACO, 65.6% indicated the same for a pay-for-performance model, and 52% said their organizations would participate or support “other models involving new payment approaches.” (See “Payer market survey: Emerging healthcare business models.”)
Despite payers’ increasing willingness to experiment with alternative payment models, however, the record of these models ha been mixed, at least in terms of how physicians have responded to the incentive payments most programs include. (See “Billions wasted on incentive payments that fail to motivate physicians.”)
PROVIDING SUPPORT TO DOCTORS
A common theme among many of the relationships, Zirkelbach says, is payers providing tools to physicians and practices to help them better manage patient care and coordinate care among different providers.
“If a provider is being rewarded based on how well their patient population is doing, they need data to be able to monitor that. Some plans are providing that to providers,” he says. In other cases, payers will “embed” nurse case managers in doctors’ offices to help coordinate patient care with other providers.
Zirkelbach adds that most health plans have specific criteria they want physicians to meet before they will consider partnering with them in an ACO or other alternative payment program. The criteria were outlined in an October 2011 article in Health Affairs authored by several AHIP executives. Among the criteria:
Glen Stream, MD, MBI, FAAFP, board chairman of the American Academy of Family Physicians (AAFP), says his organization welcomes the focus on quality and outcomes among private payers and is developing resources to help its members meet quality criteria, including a medical director focused solely on quality improvement.
Stream adds that the AAFP’s model for medical homes is close to the one used in the Comprehensive Primary Care Initiative (CPCI), a partnership between Medicare, state Medicaid agencies, commercial health plans, and PCPs. As part of the CPCI, Medicare supplements fee-for-service payments with an average of $20 per month per beneficiary payment for the time spent in coordinating care.
“We envision fee-for-service continuing but with a decreasing importance over time,” he says.
PAYERS SCRUTINIZING COSTS MORE CLOSELY
Bee notes that the trend away from fee-for-service is leading private payers to pay closer attention to the costs and benefits of many common tests and procedures.
“We’re already seeing push-back on procedures like age-related mammograms, Pap smears, and prostate-specific antigen tests,” she says. “Doctors can expect payers to be very critical of these proactive procedures that have been shown longitudinally not to save them money.”
Bee cites as an example an orthopedist who developed a home rehabilitation kit for patients on whom he has performed shoulder surgery. “He has about the lowest overhead of any doctor I’ve ever seen. The payers love him because he saves them a huge chunk of money, and because of that, they’re willing to pay him a premium,” she says.
Bee adds that payers’ growing resistance to paying for some tests and procedures may create a dilemma for doctors in cases where they are required to perform such tests and procedures to meet some forms of quality criteria, such as under the Physician Quality Reporting System (PQRS).
“Someone’s who all geared up to meet the PQRS standards may get a big surprise when a private carrier says, ‘Those standards are all well and good, but here’s what we want,’ ” Bee notes.
Dietrich believes that the development of ACOs and other physician-hospital partnerships represents a financial opportunity for PCPs.
“There’s enormous potential for additional income that comes from the negotiating leverage of being part of a powerful health system,” he says. “And a powerful health system is made more powerful by having a strong group of [PCPs] contracting with it.”
In Massachusetts, he says, physicians aligned with Partners HealthCare are reimbursed at rates that are 30% to 35% higher than physicians in generic contract networks. “I’ve seen much the same thing in other markets,” Dietrich adds.
ONLINE EXCHANGES COMING
A second impending change roiling private payers is the appearance of the online consumer health insurance exchanges included in the ACA, which are due to begin January 1. Payers are responding by broadening their menus of plan options, with a renewed focus on holding down premiums.
The new options take a variety of forms, such as identifying a practice or system as “high-performing” and charging lower copays for patients who use them, or limiting the number of providers in a plan so as to maintain tighter controls on quality and costs. A November 2012 study by the benefits consulting firm Mercer found that high-performing networks are already being used by 23% of companies with more than 5,000 employees, up from 14% the previous year.
Stream says the advent of high-performance networks is stirring apprehension among AAFP members. “Those in solo or small-group practices are concerned that they might be excluded, even if they can demonstrate they are providing high-quality, cost-effective care. There’s a lot of importance to the relationship between a patient and their healthcare provider, and that shouldn’t change just because of changes in the insurance market,” he says.
Moreover, he says, limiting the number of providers to keep costs down could prove counterproductive. “There’s always the concern that what you save on the front end winds up costing you on the back end,” he says. “If people aren’t getting the prevention and wellness services they need, if their care is not well-coordinated, the costs of caring for them will be higher down the road.”
According to Bee, however, such concerns could be misplaced, particularly if a practice has a large and loyal patient base. “Any insurance plan wants a network that appeals to the vast majority of its target market, so if you’ve got a ton of patients, and those patients love you, you’ve got a lot of leverage with a network.”
She adds that PCPs’ role in networks of all sizes will increase in the coming years as the gap between the demand for primary care services and the number of PCPs continues to widen. Unlike with many specialists, “you can never have enough primary care,” she says.
At the same time, she is adopting a “wait-and-see” attitude toward the changes, because they evoke memories of the period in the 1990s when many private practices sold themselves to or affiliated with practice management firms.
“Those doctors were promised huge salaries when they joined, but in the end, the savings in overhead did not materialize, and the companies wanted to cut doctors’ salaries or have them see many more patients. In the end, those companies imploded, and I worry we may be looking down the same barrel today.”
CHANGING HOW HEALTH INSURANCE IS PROVIDED
The ACA is the largest overhaul to the nation’s healthcare insurance system in nearly half a century, and its effects will be felt by virtually everyone with a stake in the healthcare system, including payers and physicians.
“It’s a complete change in how health insurance is provided, especially on the individual market,” says the AHIP’s Zirkelbach. “So health plans have been spending the past 2 years getting ready for all the changes that are going to be required of them,” such as no longer being able to deny coverage for pre-existing conditions and guaranteeing coverage for everyone who applies.
The ACA also specifies a minimum level of benefits that must be included in all health insurance policies. Zirkelbach notes that in some cases, meeting this specification will require individuals to buy benefit packages that are broader and more costly than what they have today. As a result, he says, many young and healthy people probably will go without insurance and pay the fine.
Decreasing the income eligibility level for Medicaid is expected to increase the demand for primary care, even as the country already faces a growing shortage of PCPs. The AAFP’s Stream notes that the ACA includes some provisions aimed at addressing the primary care shortfall that also will benefit current practitioners, such as a 10% primary care “bonus” in Medicare reimbursements and a 2-year period in which Medicaid and Medicare payments will be equalized. “These are small increases, but they point in the right direction,” he says.
Other parts of the ACA, such as the National Health Service Corps’ Students to Service loan repayment program and the establishment of Teaching Health Centers, may help to increase the supply of PCPs in the future, he adds.
Bee believes that an unintended consequence of the ACA may be to further push independent practitioners into affiliating with, or selling to, hospitals or health systems. That’s because to keep their plans affordable, payers may be forced to reduce their reimbursements to providers.
“If that happens, you’re going to have practices either limiting their patients from these high-discount plans or join with a hospital where, in effect, they can be subsidized,” she says.
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Billions waster on incentive payments that fail to motivate physicians
Payers spend about $20 billion annually on incentive payments, but a recent survey of more than 4,500 healthcare providers concludes that pay-for-performance programs are largely ineffective and do little to improve the quality of care.
Nearly 70% of primary care physicians (PCPs) surveyed by the Evanston, Illinois-based consulting firm ZS Associates in its 2012 Incentives for Health Professionals Report say that incentive payments are good, and 56% expect to receive more bonuses in the future. Roughly one-fourth of the PCPs polled report earned performance bonuses, compared with 22% of specialists, 18% of midlevel providers, and 7% of medical assistants.
Even though up to 85% of physicians and nurses could receive incentive payments, the report says that nearly 75% “were either unaware of the rewards or unable to distinguish incentive payouts from base pay.”
“Payer incentives are relatively small and fail to ‘trickle down’ to the individuals making the actual decisions that affect outcomes,” the report says.
Nearly 30% of PCPs surveyed say that incentive payments are not motivating, and more than half admitted to being unsatisfied or neutral concerning their current incentive plans.
Relative value units-a standardized amount assigned to each procedure or encounter-are used as an incentive payment metric for 72% of PCPs; for 30% of PCPs, they are the only metric used to calculate incentive payments. PCPs polled said that their incentives were based on:
The authors speculate that the incentives haven’t motivated physicians because they often are too small to make a difference, are perceived as arbitrary or unfair, are not understood, or are too infrequent to provide meaningful guidance.
More than 33% of PCPs say they get no guidance updates to back their incentive payments, whereas 45% reported receiving multiple updates. Roughly half of respondents say they receive payments once a year, with the rest being paid two to four times per year.
Because performance incentives are a cornerstone of healthcare reform and a widely accepted healthcare management tool, “smarter” use of such payments will be critical in the future if better quality and efficiency are desired, the authors say. Their suggestions for reforming incentive payments: