Joined at the hip

For most of us enmeshed in the day-to-day of healthcare provision and policy, it is easy to lose sight that we are heading into the maw of a leviathan called payment reform and that once spewed out, we'll likely be wading about a radically different payment system. You may remember me from my days at the helm of the Leapfrog Group, an employer-led organization that has helped make the delivery system more transparent and responsive to purchasers and patients. Also led by large purchasers, a new group called Catalyst for Payment Reform, where I recently became executive director, is working with providers, health plans and consumer and labor groups to improve quality and reduce costs by changing how we pay for care.

Purchasers have leverage. When Leapfrog started, employers pursued three marketplace changes: standard measures of performance, public reporting and payment tied to performance. While measures and reporting have a long way to go, those trains have left the station.

But we have work on the payment front. Only about 1% of payments reflect how doctors and hospitals perform. While no one can say what this percentage should be—10%? 80%?—we can agree it should be much higher. If we do nothing, purchasers will continue to pay for market power, care because of complications and covering the shortfall from Medicare and Medicaid payments. Paying for these wasteful aspects of the system keeps healthcare beyond the reach of millions and enables preventable mistakes and poor quality.

CPR's initial agenda enlists several strategies. First, start with reforms we can implement tomorrow on the rails of the existing system. We must improve value while we test new payment and delivery models. Furthermore, today's rates are the baseline for next year's new forms of payment, so continued improvement helps us now and later. One quick win could be reference pricing where purchasers and health plans set prices for specific services; any amount higher the patient shoulders. If designed properly, this approach could encourage providers to improve quality, cut costs and lower prices for elective services. Another example is recalibrating payment for maternity care so that more often it is evidence-based. This service line is a prime target for better outcomes and savings as caesarean section and early induction rates break records.

Second, tie hospital payment to patient safety. During the next three years, HHS' Partnership for Patients aims to save 60,000 lives and reduce costs $35 billion by preventing injuries and complications. We endorse the partnership and have equipped healthcare purchasers with health plan requests for information questions to help them align with it. The RFI signals to insurers that purchasers want their hospital payments to reinforce the partnership's incentives, including making it harder simply to shift costs to other purchasers and payers as more and more Medicare reimbursement is at risk.

Third, ensure competition. Research shows that quality declines and prices rise when hospitals merge. Variation in rates commercial insurers paid providers in Massachusetts correlated with provider leverage, not quality. A CPR-commissioned study across eight markets found sizable variation in payments to hospitals (as much as 484% of Medicare rates)—evidence that some hospitals are using in negotiations.

Employers will be weighing in on the new wave of market consolidation. As providers form larger organizations to handle the delivery and payment changes required by accountable care organizations, for purchasers, the threat of greater pricing power looms large. Shared-savings and shared-risk arrangements aim to reduce or remove incentives for providers to deliver more and more expensive services. But we lack evaluations of ACOs. Purchasers will want a say in the conditions of their growth and believe providers' financial success should hinge on demonstrating cost-containment, access and quality, and safeguards to deter undertreatment. CPR's health plan RFI questions prompt dialogue among purchasers, plans and providers on these issues.

Lastly, drive alignment among private and public sector purchasers through dialogue and partnership. Bringing healthcare purchasers' voices and experience to the CMS and its Center for Medicare and Medicaid Innovations can lead to sustainable changes to payment and higher-quality, more affordable care, in both sectors.

CPR's publicly available tool kit supports purchaser-led reforms and a shared agenda among CPR purchasers. The payment reform principles, formed with input from providers and consumers, describe a payment system radically different than today's. Action briefs illustrate how purchasers can extract more value from reforms. Our common health plan RFI, which CPR purchasers commit to use, distills plans' payment reform efforts with questions such as “What proportion of provider payments is tied to performance?” and seeks support for careful implementation regarding ACOs and the partnership. This fall, CPR's model health plan contract language will give further shape to the shared agenda now sought by a critical mass of each major health plan's customers. A national scorecard on payment reform will track our nation's progress.

As purchasers develop their role in reforming payment for a more sustainable healthcare system, they will need to be part of an unprecedented collaboration among all stakeholders, including providers. The stakes are higher than ever. Through big ideas and teamwork, we can tame the healthcare payment beast.

Suzanne Delbanco is executive director of Catalyst for Payment Reform, San Francisco.