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Solving the Payment Problem: A Purchaser’s Perspective (08:18)

The Boeing Company spends $3 billion on U.S. health care for 160,000 people, according to David Lansky, President and CEO of the Pacific Business Group on Health. When Boeing looks at total spending and rate of spending, they ask how much value they receive for this enormous expense. “Are we having a healthier, more productive workforce?”

Lansky, who works primarily with large employer health care purchasers, notes that companies examine health care cost data closely. “Unfortunately, what they find are high variations in performance of recommended care, and a lot of inappropriate care, and a lot of bad care,” he says.

One of Pacific Business Group’s members began a second-opinion cancer service with a world-class cancer center and found that 40% of patients who received a second opinion either had, for their first opinion, a wrong diagnosis, wrong staging, or wrong care plan. Pacific Business Group also found that low-risk C-sections in California range from 11% in one hospital to 70% in another. “The patient, walking in the door of a clinic or a hospital, has no idea that they’re getting a coin flip of care,” says Lansky.

There have been many efforts to address waste or inappropriate care, “but here we are in 2017,” says Lansky, “and we have the same patterns of inappropriate, unacceptable care, only at a much higher cost than what we had 20 years ago.”

Purchasers expect providers and payers to optimize patient outcomes but find that instead, they’re optimizing income. And they’ve found no systematic effort to measure and manage outcomes and use that information for improvement.

“If you are the purchaser, spending billions of dollars on care, and you discovered this pattern of care in your data, what do you do?” Lansky points to one tool: what purchasers pay for. Some purchasers have experimented with changing what they pay for in an effort to improve quality outcomes — and it worked.

A Pacific Business Group bundled payment program for several conditions has members’ patients go to centers of excellence under a prospectively paid and negotiated bundled payment. Patients and their families pay nothing, and patients receive superior care and have fewer readmissions, complications, and re-operations. Meanwhile, employers save 10% across these conditions. “This is a case where high-quality care saves everybody money and disrupts the existing networks of providers that most patients are finding available,” says Lansky.

Pacific Business Group’s Intensive Outpatient Care Program identified 15,000 people with multiple chronic conditions and severe challenges in getting good care, and helped pay for primary care teams that would deliver coordinated care, address social needs, and address mental health needs, all under a prospective payment to the care team. As a result, Pacific saved 20% of total spending thanks to reduced hospitalizations and increased measured outcomes by 25%.

“We know that changing payment, whether in primary care or in hospital care, can make a big difference in the outcomes we’re getting,” says Lansky. And as a result, purchasers believe two things:

  • Changing how they pay can change how much they pay; and
  • Changing how they pay can trigger transformation in the care model.

“Ultimately, deep transformation in the care model is what we need to see, which will trigger a lot of innovation, in both the care design and the use of products and services in care.”

Pacific Business Group asked payers to accelerate adoption of alternative payment models, and what they found was a willingness to explore those solutions, but a weak and slow uptake. “The tools we think can work are simply not being adopted fast enough,” say Lansky. “Instead, what employers are beginning to do is do it themselves.” Those employers that can are contracting directly with provider organizations, engaging new third-party administrators to build new networks where they hope to bring in new payment models.

But the question isn’t how to administer a payment model, according to Lansky — it’s which elements of that model to fulfill. He shares five keys necessary to fulfill the promise of payment reform, from a purchaser viewpoint:

  1. Significant dollars must be at risk.
  2. Focus on improvement cannot come from within. “In all the examples I know of where purchasers have driven payment reform, they have crossed their fingers hoping providers would figure out what to do — and it hasn’t worked,” Lansky explains. The purchaser must specify what they want providers to work on.
  3. Purchasers must work together. “They have to lock arms and send a consistent and comprehensive signal to a market,” says Lansky, so that providers stop inadvertently blocking transformation by cutting a discount in one area and making it up elsewhere.
  4. They must measure outcomes. Being accountable and paid for outcomes will trigger new thinking about how to organize care.
  5. They must compete with one another. Administered price-setting and negotiated prices by plans exist, but transparent competition on price does not.

“Purchasers now feel that waiting for the medical professions, the payers, the government, the regulators to solve this problem simply isn’t working,” says Lansky. “Purchasers are going to need to grab this by the horns and take a leadership position. They’re going to have to work with each other, public and private, on a shared agenda of payment reform. If they don’t, I don’t think anything will actually succeed.”

“What will happen as a result is we will accelerate the adoption of single-payer as a solution because the employers will finally be at the point of saying, ‘We give up. Someone else take this responsibility.’”

From the NEJM Catalyst event Navigating Payment Reform for Providers, Payers, and Pharma, held at Harvard Business School, November 2, 2017.

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