Healthcare Business News
Scott Serota, BCBS President and CEO

Curbing costs

Give incentives for improved health outcomes, not volume of services

By Scott Serota and Susan DeVore
Posted: January 26, 2013 - 12:01 am ET

Most Americans know that healthcare is too expensive, and that we should get better value for our money. In fact, we spend twice as much on healthcare as other nations while getting about the same results.

Working to stop rising costs—while continuing to improve quality—should be a national priority. And it has been for those of us in the private sector who have been working to transform our system long before the healthcare reform law passed.

Unfortunately, there are still barriers to progress.

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For example, Medicare today pays hospitals a fee for each service they perform, regardless of whether it helps a patient. This means that a hospital that prevents an infection gets paid less than one that allows a patient to develop an infection during his or her hospitalization.

That's right—a great hospital that uses the most effective treatments can end up earning less than a hospital with sloppy practices that lead to avoidable infections. Moreover, private insurers have sometimes been stymied in efforts to alter these incentives.

That's exactly the kind of backward incentive that worsens health problems, drives up prices and leaves patients dissatisfied. In any other business, it would be absurd to pay the worst performers more and the best performers less, but that's exactly what we do in healthcare.

Fortunately, the private sector is now developing new and effective ways to overcome these upside-down incentives—and we're already delivering better results.

In Hawaii, the local Blue Cross and Blue Shield plan is partnering with hospitals and Premier on an initiative that ties reimbursement directly to cost and quality outcomes. As part of this program, hospitals are challenged to eliminate avoidable deaths, prevent readmissions and reduce hospital costs. In addition, hospitals must provide all recommended treatments, prevent infections and injuries, and ensure a positive experience.

Hospitals that meet the goals are eligible for bonuses. Those that don't risk a 15% payment penalty. No more payment for bad outcomes.

Other collaborations among medical professionals and insurers are exploring new ways of delivering the best possible care to the customers—and patients—that we share. In New Jersey, Horizon Blue Cross and Blue Shield and health system AtlantiCare are working to change the typical us-vs.-them dynamic between providers and insurers by sharing goals, risks and investments in care improvements. After all, it's best for everyone when people are healthier.

Susan DeVore, CEO of Premiere Healthcare Alliance
This model holds AtlantiCare accountable for the health of its patients. It is the opposite of the status quo, which currently encourages a greater volume of medical care.

Instead, AtlantiCare and Horizon Blue Cross and Blue Shield succeed by keeping people healthy and out of the hospital. Progressive payments allow AtlantiCare to hire care managers to better provide care at home and in the appropriate settings based on a patient's condition and needs. And the insurer and AtlantiCare share the benefit from savings generated through greater efficiencies and better results for patients.

The end result is win-win-win—first for the patients in New Jersey, but also for the insurer and the healthcare provider. In this case, New Jersey residents get fewer illnesses, care that is coordinated to fit their health needs and fewer stays in expensive hospitals. Horizon shares revenue in order to encourage AtlantiCare to invest in solutions that will cut expenses over the long term. And AtlantiCare gives up some revenue it would otherwise get from admissions in exchange for savings that come from a healthier population that is less expensive to care for.

Each of these creative approaches started and expanded in the private sector. Working together, doctors, nurses, hospitals and insurers are making changes to healthcare in America, cutting costs and making families healthier at the same time.

That's what our customers—and all Americans—deserve.

Scott Serota is president and CEO of the Blue Cross and Blue Shield Association. Susan DeVore is president and CEO of the Premier healthcare alliance, Charlotte, N.C.

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