November 26, 2015
By Steven Wishnia
U.S. health-insurance companies are moving away from a “fee for service” system, where doctors and hospitals get paid for the specific services they do, to a “pay for performance” system, where they get a flat fee for providing care, and make money if they come in under budget.
That was the consensus of the ten insurance-company executives and union health-care plan administrators and consultants who spoke at LaborPress’ Health Summit Nov. 19. A secondary theme was the impending impact of the Affordable Care Act's “Cadillac tax” on union health-care plans that pay for more than a certain amount of care. It will go into effect in 2018. We're trying to flip the whole system,” said Niyum Gandhi, chief population-health officer at Mount Sinai Hospital. “Three years out, we'll be in full risk across our patient population.” At Empire Blue Cross BlueShield, more than two-thirds of medical staff is now in either pay-for-performance or a risk model accountable-care organization, said Dominic DePiano, vice president for network management.The purpose of this transition is to cut costs. The Affordable Care Act of 2010 prohibited practices insurance companies traditionally used to control costs, such as setting either annual or lifetime caps on what they would pay for an individual’s care.
The rationale is that the fee-for-service model gives doctors and hospitals an incentive to do excessive treatment such as tests, while a “population health” model that emphasizes wellness, preventive screening, and follow-up care will provide good care for less money. Our value-based approach revolutionizes the way we contract with providers by tying payment to outcomes—the value created—not volume of services,” Joseph Scibilia, market head at Aetna’s Northeast Public Sector and Labor Segment, told LaborPress. “This means we are creating not only savings through our discounts, but longer-term sustainable savings as providers manage population health.” Managing chronic conditions is an important part of this too, said Michael Jordan, head of the Labor and Strategic Accounts division of MagnaCare, because “two to three percent of our membership drives 20 to 30 percent of our costs.” The problem with this model is that cost-cutting can be an incentive to give less care. Providers need “to properly balance health care, cost, and quality,” said Dr. Bartley Bryt of Brighton Health, which provides medical services for and administers Taft-Hartley multiemployer plans. Mt. Sinai has devised quality and efficiency measures for 26 different specialties, said Gandhi, with 20 to 30 criteria in each one, and has 250 care managers who call patients three days after they visit doctors. “I’d love for my doctor to call me to say, ‘Hey, did you take the pill?’” Scibilia said after the discussion.
Still, the quality of medical care is difficult to quantify. There is hope for an increase in quality and efficiency, said Jordan, but “to date, we have not necessarily seen that.” Common measures include the average length of hospital stays and the percentage of patients being readmitted, based on the assumption that spending less time in the hospital indicates that they’re receiving good care. Less “fragmented” care, better coordination and sharing of information, and new drugs might also save money while improving care, said Bryt. The New York Hotel Trades Council runs its own medical system and provides care for half what it would cost through a private insurer, said Dr. Robert Greenspan, chief of its employees benefit funds. One way it has saved money is through ambulatory surgical centers, where a double mastectomy for breast cancer can cost half as much as it would in a hospital. Drugs are the fastest-growing medical costs, he added. Prescription drugs now account for about one-third of union health plans’ spending, said Jordan, and will be half of it by 2018, as they’re going up by 20-22% a year. The savings from switching to generics are “maxed out,” he added, and the pharmaceutical industry is raising prices for generics. New cancer-treatment drugs and the hepatitis C medicine Sovaldi are among the most expensive.
Those costs can be worth it, said Greenspan. Even at $90,000 a year, Sovaldi is “an incredibly good drug.” The question plans should be asking is “do we need a $4,000 toenail-fungus drug.”The collapse of the HealthRepublic insurance co-op is a cautionary tale, said Albany health-insurance lawyer Sean Doolan. It offered lower rates than private insurers and covered about 20% of the people who bought policies through the New York State exchange, but lost $78 million in 2014. The state announced it would close it in September, and it will terminate coverage Dec. 1.“These premiums were completely unsustainable,” said Doolan. “No one wants to deliver the message that a plan needs a significant increase.” Looming over the future of union health benefits is the Affordable Care Act’s “Cadillac tax,” which will levy a 40% excise tax on plans that provide more than $10,200 a year worth of care for an individual and $27,000 for a family, or $27,000 in multiemployer plans. Empire’s Thomas Canty, vice president for labor accounts, projects that it will affect about 7% of all union plans and 26% of public-sector plans immediately in 2018, but that will rise to more than a quarter of all plans by 2023 and almost half by 2027.
At that level, said Greenspan, “it’s not really a ‘Cadillac tax,’ it’s a Chevy tax. The tax is likely to lead to limited budgets and narrower networks, where users have fewer doctors to choose from, Canty said, though that will be subject to collective bargaining. California’s public-employee unions have agreed that the Calpers benefit system will not pay more than $30,000 for a hip replacement, with the member paying anything above that. It might also lead to higher emergency-room copays, said Scibilia. Unions should put language in contracts to limit such costs, said Dean Hatfield of Segal Consulting. For example, he said, “stop-loss” insurance to cover extra costs often “lasers” specific individuals who have high medical costs, prohibiting coverage for them, but “you can negotiate that out.” Repealing the tax is unlikely, said Doolan, as it would create a “$78 billion hole in the federal budget.” On the other hand, he added, not repealing it would be costly for local governments; it’s expected to cost Boston $120 million.