“What I’m going to try to do in the next few minutes is get us really thinking — thinking about new payment models and our assumptions about how we think they should work,” says Michael McWilliams, Associate Professor of Healthy Policy at Harvard Medical School and a general internist at Brigham and Women’s Hospital.
There are two main components to these payment models, according to McWilliams:
- a global budget for total spending for a defined population, with incentives for providers to lower spending below that budget; and
- pay-for-performance (P4P), the purpose of which is to prevent stinting and improve quality while lowering spending.
If spending = price x quantity (PxQ), we need to lower either P or Q. To lower prices, we need more competitive provider markets or more price regulation, and payment reform can help drive price competition.
What about lowering quantity or utilization? One strategy is to enhance patient care to the point of prevention. “That is by far the most popular strategy and the one underlying most care coordination, care management efforts. But it’s not likely to work all that well because the math is just tough,” explains McWilliams. “Essentially, that strategy is to do less, but only by first doing more.”
And doing more — whether case management, filling in gaps of care, expanding access, etc. — results in increased utilization and increased costs, not the reverse. “‘An ounce of prevention’ may be ‘worth a pound of cure,’ but that’s only true when prevention works,” he says.
“The bottom line is, it’s just really hard to save a dollar if you have to first spend a dollar, and the evidence bears that out over and over again,” says McWilliams. “Cost containment and quality improvement are not the same things. They are relatively distinct objectives requiring different approaches.”
Another other strategy for lowering utilization that McWilliams finds more promising is to “just do less.” Either substitute lower-cost for higher-cost services or don’t have the test, procedure, or hospitalization at all. This doesn’t mean cutting valuable care, McWilliams explains, but low-value care is so prevalent that it shouldn’t be hard to determine how to cut the waste.
“If the objective is to control spending, why are we pouring billions of dollars into care coordination and high-risk case management instead of developing systems for eliminating waste?” asks McWilliams. One reasons is that the “do more to do less” conversation is easier to have than talking about how to get providers to do less, how to better regulate prices, and how to break up big health systems with market power.
Disruption is harder when “our favorite narrative” of risk-bearing integrated delivery systems bending the cost curve serves the interests of dominate providers. Full-spectrum care at organizations with large patient pools potentially means higher prices and weaker incentive to do less. “Wasteful care is lucrative care to those who provide it,” McWilliams comments.
Delivery systems cultivated under fee-for-service are not best suited to succeed as we move away from fee-for-service, says McWilliams. “Should it be any surprise that we need to reorganize the practice of medicine to support an entirely different payment system?” Independent physician groups generate the bulk of savings in the Medicare Shared Savings Program, not big health systems. And there isn’t much evidence for a tradeoff between coordination and competition. “Why can’t we have both?” he asks. “The evidence of competition driving prices down and quality up is far stronger than any evidence of efficiencies from integration or full-spectrum care.”
McWilliams next addresses the quality, or P4P, part of new payment models. Pay-for-performance evidence is not encouraging, he says, and it’s not due to lack of strong enough incentives or the right measures. The quality movement mantra “if you can’t measure it, you can’t change it,” attributed to W. Edwards Deming, doesn’t make sense, he says. Deming actually said, “It is wrong to suppose that if you can’t measure it, you can’t manage it — a costly myth.”
The notion that you need to measure something to change it “flies in the face of standard economic theory, which reasons that as long as quality is observable to motivated, well-informed actors, you don’t need to measure a thing.” Consumer preferences drive product improvement — we don’t need P4P or public reporting to get Apple to produce the iPhone 8, or to know that an iPhone 8 is better than an iPhone 5.
Not only is measurement and P4P potentially unnecessary, but it can also be harmful. One major downside is that it has left the physician workforce, particularly primary care physicians, demoralized and cynical, says McWilliams.
“The challenge is not how to stiffen penalties or how to come up with the right set of measures. The real challenge is, how do we improve quality without having to measure it? And if what we need are well-informed, motivated actors who can observe quality, physicians certainly seem to fit that description. Rather than demoralizing them, why aren’t we providing them with the information they need and positioning them to drive improvement?” This could be through referrals to providers they think are best or in their choice of where to work.
“We have all these really smart and dedicated people who have dedicated years of their lives to learning about medicine and patients, and who have taken an oath to serve others. We have got to figure out a better way to use that resource. And if we do, maybe then we can talk about using some measures to see if it worked.”
From the NEJM Catalyst event Navigating Payment Reform for Providers, Payers, and Pharma, held at Harvard Business School, November 2, 2017.