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Navigating Payment Reform

Economic Investment and the Journey to Health Care Value — Part II: Health Care Payers

Article · November 28, 2017

The Health Care Transformation Task Force (HCTTF), formed in 2015, is a consortium of organizations representing patients, payers, providers, and purchasers working toward establishing value-based payment as an industry standard. Its members, which represent, insure, and/or provide treatment for more than 200 million people, or more than 60% of the U.S. population, are committed to having 75% of their business operating under value-based reimbursement arrangements by 2020. This series of three articles examines this transition from the points of view of providers, payers, and purchasers.

 

For U.S. health insurers, the future is increasingly clouded by legal and political uncertainty that could fundamentally alter how coverage is provided to millions of Americans. Payers are in the precarious position of planning for potentially seismic short-term changes in their regulatory environment while trying to address rising health care costs.

Many private insurers, following the lead of CMS in its push toward alternative payment models, have already invested broadly in value-based payment programs. Estimates by the HCP-LAN, a government-funded consortium, revealed that 29% of health care payments were made through alternative payment models (shared savings, shared risk, bundled payments, or population-based payments) in 2016, up from 23% the previous year.

Now that payers have had an opportunity to experiment with several models, they are streamlining their efforts by positioning their businesses on value-based arrangements that have shown the most success in reducing costs and improving outcomes. (While these vary by market, population, and other factors, HCTTF has seen payers start to favor arrangements such as accountable care organizations [ACOs] and capitated contracts that encourage providers to take on more significant financial risk.) The economic impact of these investments is not widely understood, mainly due to limited public data and the complex interplay of other external factors such as legislative and regulatory uncertainty. However, despite these limitations, the broad scale of investment makes a compelling case for the importance of sustained efforts to identify effective value-based payment models.

Payer Investment and Reallocation to Value

Payers are making substantial investments in value. They are committing resources to build new infrastructure and transitioning many of their provider contracts to value-based arrangements:

  • As of August 2017, HCTTF has tallied 184 publicly announced value-based payer-provider contracts among the top five commercial payers, as follows:
Value-Based Payment Models Payer-Provider Contracts Value-Based Arrangements

  Click To Enlarge.

  • In a 2016 survey of 115 health insurers, payers reported that 58% of their business had already shifted from fee-for-service toward value-based reimbursement.
  • Aetna and UnitedHealth indicate that they have more than 45% of their total annual medical spend in value-based contracts. For UnitedHealth, that equates to $52 billion of a $115 billion annual total. Aetna aims to have 75% of its total business in value models by 2020, a goal that is notably supported by its investments in joint venture partnerships with health systems and its large ACO footprint. Many other payer organizations, including UnitedHealth, have also invested broadly in accountable care arrangements.
  • Anthem recently announced that 58% of its total medical spend across all lines of business is in value-based contracts, with “over 75% . . . represented by shared savings arrangements, shared risk arrangements, [and] population-based payment models.” The insurer has invested more than $255 million in care coordination payments to providers in its Enhanced Personal Health Care (EPHC) program, which was created to build upon the success of patient-centered and value-based care.
  • Blue Cross Blue Shield of Michigan tells HCTTF that it has spent a sizeable amount to set up its value-based care programs. Over the last decade, internal resource allocation to these initiatives — including IT, analytics, operations, and human resources — has topped $100 million. Additionally, the organization has paid out more than $1.5 billion through value-based arrangement partnerships with more than 130 hospitals and 20,000 physicians across the state.

Finding the Value in Value-Based Payment

Many health insurers view value-based payment as a strategic imperative because of existing evidence that supports cost savings and positive impacts on patients:

  • Through its EPHC program, cited earlier, Anthem cut emergency room costs by 3.5% and realized a gross savings of $9.51 per attributed member per month in the program’s first year. Provider participants also saw 7.8% fewer acute inpatient admits per 1,000 patients.
  • The Blue Cross Blue Shield Association announced the creation of Blue Distinction Total Care (Total Care), made up of 450 patient-focused care programs across 36 independent affiliates, that is expected to generate an estimated $840 million in annual savings over traditional payment models. The Blues’ Patient-Centered Medical Home programs have seen promising savings: In one example, CareFirst BCBS reported $267 million in savings between 2011 and 2013, with a corresponding 6.4% fewer hospital admissions and 8.1% fewer readmissions compared to non–medical home patients.
  • Cigna’s Collaborative Care program, which fosters collaborative arrangements with large physician groups and applies a pay-for-value structure, generated total medical cost savings of approximately $145 million in 2015. Cigna also reported that its top-performing national physician groups saw, on average, a 30% lower rate in avoidable ER visits compared to local markets.
  • Humana saw an estimated 20% cost savings for members affiliated with providers in a value-based reimbursement model setting, and reported a 10% increase in medication review for patients with special needs.

Next Steps for Payers

As the health care industry braces for potential change, payers will decide how intently to focus on value-based initiatives.

Evidence suggests that value-based contracting has played a substantial role in reducing insurer costs and utilization, which is why it remains a top strategic consideration for many organizations.

Despite the importance of developing value-based approaches, insurers still face challenges in implementing and sustaining strong programs. They include:

  • Market instability, resulting from unpredictability in individual and group market regulation. Many payers are scrambling to shore up their risk pools and decide whether and how to offer their products in various markets. As a result, they may have less organizational capacity to focus on broad-scale value transformation.
  • Uncertain return on investment. Accurately calculating a program’s ROI can be tricky, given the variability of patients, providers, and markets. Health insurers must allow a new value program enough time to adjust for unforeseen impediments, but pivot quickly to new models if necessary. Furthermore, it is imperative for payers to know their markets well and to offer value-based products/solutions that are practical and achievable by the providers in those markets.

Despite — or in part because of — these challenges, it will become increasingly critical for the health insurance industry to sustain the momentum toward value-based care; to demonstrate that cost savings are being passed on to consumers in the form of lower premiums and continued investment in value-based programs; to work hand-in-hand with providers to deliver the best, most efficient care; and, ultimately, to ensure that patients remain a top priority.

 

Read “Economic Investment and the Journey to Health Care Value” — Part I: Health Care Providers and Part III: Health Care Purchasers.

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