Healthcare Business News

Equal pay

All-payer system favored, survey shows

By Linda Wilson
Posted: October 25, 2010 - 12:01 am ET

When creating a mixture of financial incentives to curb ever-rising healthcare costs, all insurers should follow the same basic recipe.

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The trick, however, is finding the right blend of ingredients to encourage hospitals and physicians to provide cost-effective, high-quality care, and thus, influence how much the U.S. spends on healthcare services. Consumer behavior also should be added into the mix.

So say the participants in the most recent Commonwealth Fund/Modern Healthcare Opinion Leaders Survey.

“Right now, each private insurer negotiates with doctors and negotiates with hospitals about the payment rates. Rather than it being a market-determined price of supply and demand in some kind of a competitive exchange, you really have the dominance of the provider or the dominance of the insurer determining price. What this (survey) says is that makes no sense. Payers with government at the table ought to get together and pay the same way and pay the same amount,” said Karen Davis, president of the Commonwealth Fund.

More than two-thirds, or 71%, of respondents said it is “very important” or “important” that “all payers use the same basic method of payment for rewarding quality and efficiency.”

A minority of survey participants said they didn't think a single-payment structure would have an impact on quality and efficiency. A total of 12% said it was “neither important or unimportant,” 11% said it was “unimportant” or “very unimportant,” and 5% weren't sure.

Harris Interactive conducted the survey, which focused on healthcare transparency and pricing, between Sept. 7 and Oct. 6.

A total of 190 opinion leaders from the healthcare delivery, finance and policy fields participated in the survey, the 23rd in a series designed to gather opinions from healthcare leaders on timely policy issues.

Support for the concept of a common payment structure among private insurers and public programs was strong among all groups of survey participants. A total of 72% of participants from academic and research institutions supported the idea, compared with 79% from healthcare delivery organizations and 77% from insurance or other health businesses. Participants from labor and consumer groups were the least supportive. Nonetheless, more than half, or 54%, favored the idea.

Not all respondents were ready to throw out the current system.

“I think it is better to allow for variety and creativity in payment arrangements rather than require, or even permit, all insurers to use the same method,” said Mark Pauly, professor of healthcare management at the University of Pennsylvania's Wharton School. “I might feel differently if I thought there was an ideal payment method that we had already discovered, but I think we are very far away from that,” he said.

Elizabeth Imholz, special projects director for Consumers Union, also thinks the healthcare system still is in the research and evaluation phase. “Ultimately, a single unified system probably makes absolute sense, but for the moment I am not bothered by the fact that, although it is messy, we have some different things going on. I don't think it is a bad idea to take the time we need to get it right.”

What type of process is necessary to create an all-payer payment structure that rewards providers for quality and efficiency?

In the survey, respondents were asked to choose from among four scenarios, including two that would create a common payment structure. Consider the breakdown:

  • 29% chose an all-payer rate-setting system for insurers. A government authority usually sets the rates in this type of system.

  • 27% chose a single system of payment-rate negotiation in which insurers and public programs jointly reach a deal with providers.

  • 23% chose a system in which providers set their prices, and insurers pay the lowest price available for a service. Patients then pay the difference if they seek treatment from somebody other than the low-cost provider.

  • 9% chose the current system.

  • 13% chose “other,” or none of other the options.

Davis said the number of respondents who supported an all-payer system of payment—whether through collective negotiation or through rate-setting—surprised her.

But there's a gulf between what makes sense in theory and what's doable in the real world, in the opinion of Georganne Chapin, president and CEO of Hudson Health Plan in Tarrytown, N.Y.

“I don't think a cookie-cutter approach is practical except in confined areas,” she said. “Healthcare is still local, and provider networks are local, and what works in one area may not work in another.”

There are other considerations as well, such as the potential for antitrust problems if all insurers in a local area collaborate on a common payment structure, she said.

Another issue: Insurers consider the details of their payment strategies proprietary because they use them to differentiate themselves from their competitors.

“Things would have to change on a policy level if you wanted that kind of conformity in provider payments. It has to be enforced on the government side,” Chapin said. “I don't see how you can achieve it on a voluntary basis by getting a bunch of insurers together.”

Nonetheless, some similarities in the way insurers reward hospitals and doctors for meeting quality and efficiency standards are likely to evolve organically over time because insurers will adopt practices that are proven to work, Chapin added.

Many payers, including Medicare, are experimenting with payment strategies that move away from the fee-for-service system.

Medicare last year awarded bonus payments to small and solo physician practices that met criteria for treating chronically ill patients as well as for providing preventive care. A similar program was devised for 10 large group practices, which received bonuses based on 32 quality measures for coronary artery disease, diabetes, heart failure, hypertension and preventive care (Aug. 18, 2009).

Chapin's Hudson Health Plan—which operates managed-care plans for enrollees in Medicaid and the Children's Health Insurance Program—also rewards providers for meeting quality and efficiency criteria.

Since 2003, for example, Hudson Health Plan has paid physicians a bonus of up to $200 for every child in its care who receives the appropriate immunizations by age 2.

But participants in the survey support going beyond the projects developed at Medicare or Hudson Health Plan.

Specifically, 73% “strongly support” or “support” value-based benefit design as a means to influence consumer behavior. Value-based benefit design is a system in which the enrollee's share of the cost for a treatment is based on its potential benefit. For example, if research demonstrates that a given diabetes drug works better than other treatments, enrollees' share of the cost of the better drug would be less—even if it costs more than alternative treatments.

And two-thirds of survey participants, or 66%, “strongly support” or “support” reference pricing. In this case, an insurer's payment rate is based on the lowest price among equally effective medications. Enrollees who choose a more expensive treatment would pay the difference in price.

Value-based and reference pricing weren't included in the reform law because they were controversial, Davis said.

Both concepts are based on the assumption that the healthcare system will amass objective data to compare the cost versus the benefit of different treatments for the same problem. To get there, Congress allocated $1.1 billion in the American Recovery and Reinvestment Act of 2009 to build such a data arsenal using comparative-effectiveness research.

Value-based benefit design and reference pricing are based on the “notion of linking comparative-effectiveness research with insurance benefit design and payment. They make a lot of sense in terms of guiding people toward lower cost and efficacious forms of treatment,” Davis says.

While value-based benefit design and reference pricing are designed to influence consumer behavior, Imholz from the Consumers Union cautions against moving forward too quickly in the public policy arena.

First, comparative-effectiveness research is an ambitious undertaking, and there is no guarantee of success, in part because it is difficult to design research studies that are truly unbiased, she said.

Second, value-based pricing and reference pricing won't work unless consumers understand and embrace the concepts. “Overall, what Consumers Union wants is for people to feel a sense of buy-in for whatever reforms are enacted,” Imholz said.

A case in point, Imholz said, was the way the U.S. Preventive Services Task Force handled the public release in 2009 of new recommendations on breast cancer screening. Revising long-standing guidelines, the task force said women in their 40s who don't have a family history or other risk factors for breast cancer should forgo screening mammograms. The task force also said women between ages 50 and 74 need screening mammograms only once every two years.

The recommendations were so controversial that a provision in the health reform law set them aside (May 12, 2010).

“The research was good; the delivery was poor. People are confused by it and frightened,” Imholz said.

Linda Wilson, a former Modern Healthcare reporter, is a freelance writer based in McHenry, Ill. Reach her at



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