Where healthcare is now on march to value-based pay

U.S. healthcare providers and insurers start from widely divergent places as some of the largest move to put most of their business into payment models that reward lower cost and higher quality care.

A new task force made up of providers, insurers and employers has committed to shift 75% of its members' business into contracts with incentives for health outcomes, quality and cost management by January 2020.

“We're making a public commitment together, all four segments, providers, patients, payers and employers, all of us saying we're going to work together to accomplish this goal,” said Dr. Richard Gilfillan, chairman of the task force and CEO of Trinity Health, a not-for-profit health system that operates in 21 states. Gilfillan is also former head of the CMS Innovation Center, which was formed under the 2010 federal health law to test new ways to finance and deliver healthcare.

The Health Care Transformation Task Force also includes Ascension, based in St. Louis, and insurance giants Aetna and Health Care Service Corp. Employer Caesars Entertainment Corp. and the Pacific Business Group on Health also are involved.

Their announcement follows similar pronouncements in the last year by individual private and public payers, including by Medicare this week.

The members have surveyed the percentage of existing business under similar contracts, but Gilfillan declined to provide details. On average, he said, 30% is under accountable care, bundled payments or other similar contracts. But there is a wide spectrum, he said, and Trinity Health is below the average. “We have a long way to go and it's a real stretch,” he said.

Gilfillan said the task force members are committed to revamping how hospitals and doctors are paid even if they're not entirely sure how to do it. “We go out and we set ambitious goals that are consistent with our commitment to the great healthcare providers and we don't know everything we need to know about how to get there,” he said.

Dignity Health, another large not-for-profit system, has roughly 15% of its business under accountable care or alternative contracts. “It's a huge, audacious goal, but one that we think needs to be achieved,” Dignity Vice President Shelly Schlenker said.

On Monday, federal health officials unveiled a plan to shift half of their spending not devoted to managed care—roughly $362 billion last year—into accountable care, bundled payments and other contracts with the potential for rewards or penalties based on quality performance and better cost control. “We believe these goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement,” said HHS Secretary Sylvia Mathews Burwell.

Executives at UnitedHealth Group, Aetna and Anthem, formerly WellPoint, have also pledged to increase the use of quality and cost-control incentives.

The declarations, however, leave many questions unanswered, raising doubts about whether meeting the targets will accomplish the desired improvements in quality and efficiency. Medicare's newly announced push to rapidly adopt accountable care and other new payment models was met with concerns from health policy experts that Medicare incentives are tied to weak measures of quality.

“If all you're going to do is you're going to put providers at risk for cost, but you don't have a robust system for measuring quality, then you're not leaving patients better off,” said Dr. Ashish Jha, a Harvard University health policy professor.

Meanwhile, there are few results from public-sector or private-market efforts to adopt accountable care and bundled payments. Blue Cross and Blue Shield of Massachusetts has seen higher quality care at lower costs among hospitals and medical groups under global budget contracts with quality targets in place since 2009. But accountable care under Medicare's Shared Savings Program, which has rapidly expanded since its launch in 2012, has seen its first 220 contracts produce uneven savings with some encouraging but inconsistent improvements in quality.

The group will develop policy proposals and private-sector initiatives. Initial efforts will focus on accountable care, bundled payments and managing the cost and quality of care for high-cost patients, including those who have multiple chronic conditions and those near the end of their lives.

The participants say they'll enter contracts that “successfully incentivize and hold providers accountable for the total cost, patient experience and quality of care for a population of patients, either across an entire population over the course of a year or during a defined episode that spans multiple sites of care.”

Half of Blue Cross and Blue Shield of Massachusetts' commercial business is under alternative contracts that use 64 quality measures to adjust financial incentives for providers under global, population-based budgets, said Dana Safran, a Massachusetts Blues senior vice president who works with the insurer's incentive programs.

The contracts allow providers with the lowest quality scores to keep 20% of savings they achieve, while high-quality providers can get up to 80%. “I've never in my career seen improvements as broad and deep as the improvements these organizations are achieving,” Safran said of the providers in the contracts. “Absolutely, the incentives on the quality side are enough to be driving change.”

Across the industry, contracts that put hospital and clinic revenue at risk for performance on quality and costs are marginal. Among hospitals and health systems rated by Moody's Investors Service, risk-based contracts accounted for 2.4% of revenue in 2013, according to the rating agency's medians. Hospital giant HCA has less than 5% of its revenue under risk contracts, according to Justin Lake, a healthcare analyst at J.P. Morgan Securities.

For insurer Aetna, 28% of payments to doctors and hospitals are tied to some kind of value-based contracts, and it has a target of 50% by 2018.

Meanwhile, 10% of Health Care Service Corp.'s business is in risk-based contracts. “As a doctor, I am very excited about the direction this is going,” said Dr. Stephen Ondra, chief medical officer of Health Care Service Corp. “For much of my career, payers and providers had an adversarial relationship that often created win-lose choices.”

HHS on Monday also announced the creation of the Health Care Payment Learning & Action Network, a network of private- and public-sector healthcare players that will share information about payment initiatives and spur more widespread use of accountable care and other new payment models.

More insurers and providers may be willing to enter risk-based contracts with Medicare's announced commitment, said John Gorman, a Washington-based consultant who works with health plans.

“I think most insurers are doing the happy dance right now because this really means that contracting for a result or an outcome is really going mainstream if Medicare is doing it,” Gorman said. “And that will only encourage or force reluctant providers to come around.”

More widespread adoption may also depend on the degree to which employers join the efforts. Self-insured employers account for 60% of membership for national insurers Aetna, Anthem and Cigna Corp.

“Employers have the most skin in the game” in the commercial market for value-based care, so HHS has a stake in employers' commitment to new payment models, said Mark Lutes, a healthcare lawyer and board chair of Epstein Becker Green. “HHS is trying to incent and suggest here that there are common needs across employers and the government as purchasers,” Lutes said. “They are collectively trying to change the way they buy.”

The transition has been difficult in some markets, even for health systems and medical groups that have dedicated significant resources toward establishing the infrastructure and expertise to coordinate care and manage risk for a population of patients.

The accountable care organizations participating in the CMS Innovation Center's Pioneer program since 2012 agreed to shift half their business into similar contracts with commercial payers and Medicaid within two years. Some have not succeeded as the Pioneers enter their fourth year.

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