Reform Update: Docs take out loans to invest in new payment model

The doctors of Cornerstone Health Care in High Point, N.C., understand more than most the risk behind healthcare's push to overhaul payment policy.

The roughly 180 physicians with the medical group signed personal guarantees this year on a $20 million loan that funded new technology investments, hiring and cash reserves at Cornerstone. The hefty investment was necessary for the medical group to switch to new payment contracts that contained financial incentives for quality and cost control.

Grace Terrell is one of those doctors. “We're in this,” she said after addressing a crowd of healthcare executives and others in Washington this month for a two-day conference on how hospitals and doctors can prepare for changes in payment.

Cornerstone, which has roughly $200 million in annual revenue, has moved more aggressively than most to invest in payment changes being tested under the Patient Protection and Affordable Care Act.

Terrell, president and CEO of Cornerstone, said that during the past 18 months, the medical group has negotiated financial incentives for all its commercial contracts and became one of 220 organizations contracting with Medicare for shared savings, which awards a financial payout if the medical group can hold costs down and meet quality targets.

Medicare's shared-savings initiative is one of two widely watched attempts to launch accountable care under the reform law. Accountable care pays bonuses—or puts providers at risk for losses—based on how successfully hospitals and doctors meet quality targets and deliver savings against patients' projected medical expenses.

Terrell said that about $8 million to $10 million of Cornerstone's new debt will be used for new technology and contracts to better analyze patient data and identify sick, costly patients. That includes a data warehouse and hiring new information technology staff, such as a chief medical information officer.

The CMIO is one of dozens of new employees at the medical group, including new disease management specialists, social workers and others to help patients navigate and coordinate their care.

But all that investment may also reduce physician income, she said, as doctors work to better control patients' medical costs. Meanwhile, any bonuses based on lower costs won't be paid immediately. So Cornerstone promised each doctor a minimum salary for at least three years, she said.

But even if Cornerstone succeeds, bonuses may still be difficult to earn. Bonuses under accountable care or other incentive-based payments depend significantly on how well contracts adjust for patients' expected costs, based on the severity of patients' illness, said Dr. Elliott Fisher, director of the Dartmouth Institute for Health Policy and Clinical Practice and a proponent of the payment model. “You have to be confident in the accuracy” of those models or risk losses, he said.

“If we succeed, it's exhilarating,” Terrell said. However, failure will leave the medical group with the choice facing so many others: consolidation, she said.

The U.S. could learn something from Germany and Japan on how to better manage healthcare costs without limiting access or compromising quality, a trio of health policy wonks write in the New England Journal of Medicine. Bundled payments in Germany include all care within a month of hospitalization, except for the most complex patients, and that includes any return trips to the hospital, write Gerard Anderson, Amber Willink and Robin Osborn in a perspective piece for the journal. (The 2010 health reform law penalties for readmission apply to a limited number of conditions, they note.)

Anderson, a Johns Hopkins University health policy and management professor; Willink, a student with the university's public health school; and Osborn, director of the Commonwealth Fund's international health policy program, also cite a potential policy fix from Japan: broad monitoring of use and prices for procedures where rising demand may be driven by overpayment.

New survey results underscore the challenges that confront a consumer who chooses to shop for medical care. “Our data point to clear opportunities to improve publicly reported healthcare price information,” wrote researchers who surveyed state and hospital association price websites. In a research letter to the Journal of the American Medical Association, they noted few websites provided quality information with pricing data. And consumers who sought treatment at a facility offering outpatient services often lacked prices for the physicians involved in the care episode.

Follow Melanie Evans on Twitter: @MHmevans