Paying for performance can reduce costs
The old adage that you get what you pay for may have particular meaning in the effort to cut health care costs.
Health care opinion leaders from a number of different disciplines and backgrounds surveyed by the Commonwealth Fund said rewarding more efficient and high-quality providers is likely to be the most effective way to reduce health care costs. Some 57% of the respondents said pay for performance is an "extremely" or "very effective" way to reduce health care costs.
"Pay for performance has been gaining attention as an effective strategy of improving quality of care," said Karen Davis, Common-wealth Fund president, in response to the survey results.
"Health care opinion leaders view pay for performance not just as a way to reward quality, but as a strategy to raise efficiency in health care delivery," she added.
The Commonwealth Fund used Harris Interactive to conduct an on-line survey of 289 opinion leaders in health policy and innovators in health care delivery and finance.
Respondents were clustered in four major groups: those employed by academic or research organizations, those involved in delivery
of health care services, those employed by businesses or the health industry including health insurance companies and managed care plans, and those working for government or labor/consumer advocacy organizations.
The survey — the third in a planned series of six intended to highlight opinion leaders’ perspectives on the most important and timely health policy issues facing the nation — focused on potential ways to lower health care spending, addressing key components of spending such as prices charged, utilization levels, and insurance overhead.
Everything can work a bit
In general, majorities of the panelists considered all the options presented to them as somewhat effective. For controlling prices, there was considerable agreement that some type of pay-for-performance approach encouraging providers to lower costs and improve quality would be most effective.
To lower use of health services, panelists believed that better management of high-cost conditions and use of evidence-based treatment guidelines would be most effective. To reduce insurance overhead, they favored having private insurance and public programs work together to streamline and standardize their products and processes.
After using pay for performance to reward more efficient and high-quality providers, the experts favored having all payers adopt common payment methods and rates as the second most effective way to cut costs, with slightly fewer than half of the respondents rating it as extremely or very effective.
Other initiatives receiving less support included promoting best practices and supporting provider learning collaboratives to improve efficiency and quality, making public information available on comparative quality and total costs of care, and providing feedback with comparative information on total resource consumption and quality to doctors and hospitals.
For reducing unnecessary utilization, two options were seen as the most effective, with slightly more than half of respondents rating them as extremely or very effective. With some small variations among the sectors, improving disease management services for patients with high-cost conditions and enhancing primary care case management ranked as the most effective action (56% of all respondents found this to be a highly effective strategy). That was followed closely by using evidence-based medicine guidelines or protocols to determine when a given test or procedure should be done (52% of all respondents found this highly effective). Expanding use of information technology ranked third.
Fewer respondents believe in the effectiveness of implementing better measures of and reporting on overutilization and having consumers pay a substantially higher share of their health care costs, with about one-third rating them as extremely or very effective.
Increase insurance collaboration
According to respondents from all sectors, the most effective way to reduce high insurance overhead is to increase collaboration among public programs and private insurers to streamline administrative costs, including standardizing insurance products and processes. Some 41% thought this would be highly effective.
However, when presented with all other possible actions, there was considerably more skepticism about their effectiveness and the sectors differed greatly in their opinions on what would and would not work.
Slightly fewer than one-third to about one-quarter of respondents viewed those actions as extremely or very effective: making health insurance a public utility regulated by states, creating a more competitive market with strong competition among different insurers, and creating a state electronic clearinghouse with consolidated electronic information on enrollees and claims.
In her commentary on the survey results, Ms. Davis said the degree of support for rewarding efficient and high quality care was striking, noting that pay for performance has been gaining attention as an effective strategy for improving the quality of care. She said The Leapfrog Group (a group representing major employers) has documented nearly 100 private-sector initiatives tying payment to quality measures. Also, several Medicare demonstrations are in place and more are being planned to test the strategy nationally.
"Health care opinion leaders view pay for performance not just as a way to reward quality, but as a strategy to raise efficiency in care delivery," Ms. Davis explained. "Yet measuring the efficient provision of care over time or over the course of an acute episode is a much less developed science than measuring the quality of care. It will take a concerted effort to develop and implement such metrics."
She also noted the low approval rating for the notion of requiring patients to pay a substantially higher share of their health costs. "Despite the attention given to high-deductible health plans linked to health savings accounts," she said, "only one-third of health leaders from all sectors believe that shifting costs to patients would be an extremely or very effective way to lower the costs of care. This strategy tied for last among those in business, insurance, or another health care industry as a way of reducing inappropriate utilization of services."
According to Ms. Davis, a key message from the survey results is that health care opinion leaders see the supply side of the health care delivery market as showing more promise for long-term success in controlling costs than shifting costs to the demand side — patients.
Promoting collaboration among providers and payers to work together toward a common goal also ranked higher than efforts to instill greater competition among insurers or providers. And supporting best practices and provider learning collaboratives was seen by 40% of leaders in health care delivery and business/insurance/other industry as a highly effective way to control costs.
"These findings are encouraging," Ms. Davis wrote. "Beyond ideological divides and self-interest, there is much agreement on practical steps to enhance value in health care delivery, reduce unnecessary services and administrative costs, and apply the business principles of continuous quality improvement, process redesign, and evidence-based practice. Working together to implement these strategies would be a challenge worth taking up."
Why crisis won’t be solved
Helen Darling, president of the National Business Group on Health, said most employers agree that the health care cost crisis won’t be solved as long as:
- We believe we can have it all and someone else will pay for it.
- We believe we can lead unhealthy lifestyles and the care system will bail us out.
- We fail to ensure patient safety and quality, thus increasing hospital stays, charges, and redundancies, and losing 44,000 to 98,000 patients a year from avoidable medical mistakes.
- We reimburse for care even though it is not recommended by experts or based on evidence.
"There is no simple way to address the dilemma of high costs," she said in commenting on the survey findings. "But a number of steps hold promise."
Despite its middle-of-the-road ranking by the opinion leaders, Ms. Darling said it will be important to invest in an information technology infrastructure to reduce human errors, prevent duplicative care, increase efficiency and effectiveness, and improve analysis of patient data.
She particularly called for investment in computerized physician order-entry systems, citing a Brigham and Women’s Hospital study in Boston that showed a reduction of 55% in adverse drug events and 81% in serious medication errors after such a system was implemented.
Ms. Darling also called for support for efforts to improve patient safety such as the "Save 100,000 Lives" campaign from the Institute for Healthcare Improvement.
"We have to get over the idea that we can or even should afford unlimited health care. There are many types of unnecessary care, including procedures taken even though there is evidence of their inappropriateness, wastefulness, or actual harm," she continued.
"These include prescribing antibiotics for viral diseases or widely prescribing drugs that are most effective for a small number of conditions. Unnecessary care also includes treatment for medical conditions that could be avoided by encouraging lifestyle changes such as healthy eating and exercise," Ms. Darling explained.
The bottom line rules
After providing a laundry list of many other steps to be taken by many different stakeholders, she noted that if corporate America knows anything, it is the bottom line. "If we fail to make hard decisions now, we will pour more and more money into a less than effective and less than efficient health system — wasting valuable resources, making it harder for U.S. companies
to compete in the global economy, and lowering everyone’s standard of living."
Alan Nelson, former American Medical Association president, who now is a special advisor to the CEO of the American College of Physicians, also commented on the results, noting that controlling health care costs seems much more daunting than providing access or ensuring quality, perhaps because efforts to reign in costs date back at least 70 years.
In the 1920s, he wrote, concerns about the cost and distribution of medical care resulted in formation of the Committee on the Costs of Medical Care, and in 1932, that committee gave the first estimate of national health care expenditures — $3.66 billion or 4% of the gross national income.
In 1971, with expenditures at $81 billion (7.2% of the gross domestic product), President Richard Nixon said there was a crisis in medical costs and the system would collapse unless they were controlled. He imposed price controls and supported legislation aimed at encouraging HMOs, health planning, and professional standards review organizations to monitor quality and utilization and reduce costs.
During the 1990s, the share of gross domestic product made up by personal health care was steady or even declining at just under 12%. Analysts cite three factors that slowed growth: health plans’ successful bargaining with providers over prices, managed care plans’ use of strategies to control service volume, and competition among plans that restrained premium growth.
Now, with health plan premiums jumping and health spending back at more than 13% of gross domestic product, pressures to control costs are again front and center, Mr. Nelson said. Projected national health expenditures for this year are $1.9 trillion or 15.7% of gross domestic product. There are significant regional variations and equally startling variations among academic health centers.
Limited usefulness
"Some argue that disease prevention efforts can restrain costs," Mr. Nelson wrote. "Such efforts are certainly important, but promoting longer life may only defer expensive final illnesses, with additional consumption of health care services in the intervening years. Some have suggested that increased competition among health plans and providers could be an effective strategy for cost containment. But this theory ignores the fact that competition and marketing often increase the demand for services. While competitive forces may restrain prices, volume drives costs."
Mr. Nelson said he thinks most people would be willing to accept efforts to increase efficiency, defined as the reduction of unnecessary services and care of marginal value. He said that adherence to clinical practice guidelines can improve quality and also raise the value of health spending.
He said he anticipates that pay-for-performance efforts initially will increase costs as efforts are made to identify underuse and encourage delivery of preventive and other appropriate services. At the outset, he said, efforts to increase efficiency likely will take the form of measuring and reporting use of resources.
However, as more research into cost-effectiveness programs guides medical benefit design, regional utilization variations should decrease, and efforts to reduce cost and simultaneously improve quality should bear fruit.
Mr. Nelson also called for professional liability reform, more and better use of information technology, rewarding primary care providers for coordinating care among various specialists who treat patients with multiple chronic illnesses, and rationalizing system capacity in terms of both facilities and human resources. "In my view, cost increases are to some extent inevitable until the baby-boom generation moves through the health system. . . . Because of this and because of the growth of technology that makes new medical services available, I believe health care costs will continue to increase," he noted.
"This will likely be acceptable to our society only if value increases as well. I believe that most Americans will prefer this to explicit rationing of care, at least in the near term," Mr. Nelson concluded.
Bipartisan congressional support for pay for performance came in legislation introduced by Senate Finance Committee chairman Chuck Grassley (R-IA) and the committee’s ranking Democrat, Sen. Max Baucus (D-MT) to create quality payments under Medicare for physicians and practitioners, hospitals, health plans, skilled nursing facilities, home health, and end-stage renal disease facilities.
The proposal would implement recommendations from the Institute of Medicine and the Medicare Payment Advisory Commission to establish pay-for-performance incentives that promote quality care and better value in the Medicare payment system.
(Download the Commonwealth Fund survey report and commentaries from www.cmfw.org.)
The old adage that you get what you pay for may have particular meaning in the effort to cut health care costs.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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