New Marketplace
Navigating Payment Reform

Four Principles for Navigating Payment Reform

Article · November 20, 2017

NEJM Catalyst’s current New Marketplace initiative is “Navigating Payment Reform.” You might ask, haven’t we been doing that for years already? To which I would reply, doesn’t that signal a problem?

Yes, health care is complicated to deliver and perhaps even more complicated to purchase and to finance, but it seems as though the industry is going way too slowly in changing this. Why? Well, providers aren’t completely convinced that buyers (both payers and employers) want change, payers don’t want to move without prodding from buyers, and most pharmaceutical industry players are fighting change every step of the way.

What is going to speed this up? Budgetary concerns. As cost-sharing increases, consumers are asking why they are paying so much out of pocket and in premiums? And providers are frustrated on behalf of patients who can’t afford needed medications or visits, not to mention the bad debt arising from high deductibles and co-payments.

The old adage, “you get what you pay for” is often used pejoratively, but in this case, it is actually a call for payment reform. Health care stakeholders must pay for value, if that’s what they are seeking. Hence the need to focus on payment reform.

Throughout the coming year — and particularly during our Navigating Payment Reform kickoff event — NEJM Catalyst will explore how payment reform can spur innovation that delivers higher-value care to patients.

What I want to do now is set the stage by laying out four key principles for stakeholders to follow.

Principle 1: Be clear and transparent about the goal.

The spin used to promote the Affordable Care Act has undermined it from the start. President Obama stated, “If you like the plan you have, you can keep it.” But you couldn’t keep your health insurance if you wanted it, because in some cases it was pretty lousy, and Congress and Obama wanted to make it better.

If the goal is to curb spending growth, let’s tell it like it is. Michael McWilliams, MD, PhD, of the Harvard Medical School has been a leading proponent of this approach. He argues convincingly that generating savings through care coordination may generate savings net of program expenses, but a surefire, cheaper way to spend less is to focus on spending less, for example by cutting out low-value services. He notes “the modest savings ACOs have achieved appear to be attributable mostly to selective targeting of obvious sources of overuse.”

I’m not throwing in the towel on care coordination as a source of savings (especially for high-acuity populations, like dual-eligibles), or on prevention, for that matter. But it does seem like emphasizing those efforts without also clamping down on waste is an expensive strategy for cost-cutting.

The bottom line is that when the industry develops payment reforms, people must be clear about what they want. Bait and switch is not a sustainable game plan — not for policymakers, not for health care providers, and not for purchasers. We won’t get what we want if we don’t say what we are aiming for.

Principle 2: Play the notes that aren’t being played.

Miles Davis advised aspiring jazz musicians, “It’s not the notes you play, it’s the notes you don’t play.” Innovation is not just about building a better mousetrap; it’s about preventing a rodent problem in the first place, or using the mice productively.

To take an example from the provider arena, consider Oak Street Health. This young company is building health center oases in what are known as “primary care deserts” — the poor urban neighborhoods that providers and commercial insurers neglect. Where others see blight and the potential to lose millions of dollars, Oak Street Health sees the opportunity to create value for low-income seniors with chronic health needs. And they are rewarded for creating that value by moving those seniors into different payment models.

To take another example, the health insurer Cigna has worked to develop collaborative arrangements with health care providers. These arrangements don’t emphasize the usual lowest price per service delivered, but rather engage providers in improving patient outcomes, and tend to pay more per unit of service delivered to cover the cost of uncompensated services necessary to reduce utilization and/or to improve outcomes. In fact, Cigna’s innovativeness is a reason that their proposed merger with Anthem was successfully challenged by the Department of Justice earlier this year. The district court judge concluded that Cigna relied on innovation to compete, and that Cigna’s innovation spurred other insurers to improve their products. “Eliminating this competition from the marketplace would diminish the opportunity for the firms’ ideas to be tested and refined,” she opined, “when this is just the sort of innovation the antitrust rules are supposed to foster.”

And last, but not least, consider that few seem to be making a ruckus about the RUC — the American Medical Association’s Relative Value Scale Update Committee whose guidelines for physician reimbursement are generally accepted by Medicare and commercial payers. Bob Galvin, MD, MBA, CEO of Equity Healthcare, which manages health care for 50 companies spending $2 billion annually, has told me that “We’re fooling ourselves if we think we can create a value-based system without changing the underlying fee schedule that pays 100% more for procedures than for evaluation and management.” Galvin does not see a way forward without addressing this issue. We cannot simply ignore it just because it’s not on our sheet music.

Principle 3: Make tradeoffs.

Strategy is as much or more about what you don’t do as it is about what you do do.

Oak Street won’t take me as a patient — I don’t qualify for Medicare, and thus can’t be in Medicare Advantage — at least not yet. They are focused. They have made choices, and choices are the core of strategy.

I’d like to see buyers making tradeoffs too. For example, employers and insurers need to stop paying full price for incremental innovation. If the old formulation of the drug works, insist on a generic of the original formulation or a biosimilar and only pay extra for the new innovation. Usually, that extra amount is not nearly as large as the price difference between the generic for the original formulation and the branded price for the new version.

Principle 4: Don’t be afraid to fail.

I know this is easy to say (and I am terrified of failing myself), but the fact is that if health care stakeholders are not trying things that turn out to be complete busts, it means they are not trying hard or differently enough. Angela Lee Duckworth, the author of Grit, says: If at first you don’t succeed, try again. And then try again after that, and try even harder. But at some point, try something different. We can’t just get better at what currently do — we have to try different things.

As a case in point, consider the pharmaceutical sector, which is badly in need of some pricing rationalization. More of the same approaches — Pharmacy Benefit Managers negotiating for discounts, manufacturers undoing cost-sharing incentives and tiering by providing copayment coupons that make buyers indifferent to drug cost, etc. — is not working. Doing a better job of business-of-usual just isn’t going to allow patients to benefit from new miracle drugs, like those for cystic fibrosis — and even old miracle drugs, like insulin.

We need BIG efforts — yes, even efforts that might fail or backfire — to reform reimbursements in this sector. How about a “narrow formulary” that mirrors the British National Formulary, available as a standard option by PBMs or insurers? That could have some potentially grave downsides, such as “selection problems” where only people who really need high-priced or experimental drugs sign up for broader formularies, but we have to take on hard problems and contemplate different solutions than the ones we are trying today.

To make progress, we must never forget the goal that motivates payment reform in the first place. It’s not to keep anyone’s slice of the pie the same size, or to enlarge it. That is hardly a sustainable business strategy. It’s to deliver the best value to the health care consumer.

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