Paying for Value, By the Numbers

Everyone likes to talk about paying for value, but how (and to what extent) are payment reforms being implemented in the real world? Two new studies shed some light on key benchmarks to watch as health care coverage continues to evolve.

The first, by Mark Hall of Wake Forest University and Michael McCue of Virginia Commonwealth University, analyzed health insurers’ investments in quality improvement activities as reported on their medical loss ratio (MLR) reporting forms. (Refresher: the MLR rule requires insurers to spend at least 80 or 85 percent of premium dollars on medical claims and quality improvement, and requires them to report on these expenditures). The authors found that insurers allocated less than 1 percent of premium dollars – totaling $2.3 billion – to activities designed to improve health outcomes, prevent hospital readmissions, improve patient safety, increase wellness, or enhance the use of health care data to improve quality.  Separately, they found that in 2011, insurers paid an additional 0.35 percent of premium revenues, or $1.1 billion, as incentives to health care providers to reduce costs and promote quality improvement.

The authors also investigated how quality expenditures differed by corporate traits of the insurer, finding that nonprofit insurers spent nearly twice the median quality expenditure per member as for-profit insurers, whereas provider-sponsored insurers invested 67 percent more in quality improvement than non-provider-sponsored insurers.  While there was no significant difference in quality expenditures between publicly traded and non-publicly traded insurers, publicly traded insurers did spend 50 percent more on the health IT component of quality improvement than their non-publicly traded counterparts.

The second study, released yesterday by Catalyst for Payment Reform, is a first-ever national scorecard on progress with payment reform, using self-reported data submitted to eValue8, the National Business Coalition on Health’s annual Request for Information to health plans.  Among the findings:

  • About 11 percent of the health care dollars we pay to doctors and hospitals today are “value-oriented” — tied to how well they deliver care or create incentives for both improving quality and reducing waste.
  • Within the 11 percent of payment that is value-oriented, the Scorecard finds that 43 percent of those payments give providers financial incentives by offering a potential bonus or added payment to support higher quality care. The other 57 percent of payments put providers at financial risk for their performance if they do not meet certain quality and cost goals, such as bundled payment.
  • Almost 90 percent of payments reported remain in traditional fee-for-service, or in bundled, capitated, or partially-capitated payments without quality incentives.

While careful to point out that the scorecard findings are not wholly representative of all U.S. health plans, the report does offer a preliminary baseline – one that providers, issuers, and purchasers are sure to be watching closely.

The results of delivery system reforms on costs and quality can be tricky to quantify – particularly when it comes to the federal budget – but that is not stopping public payers, as well as some private payers, from moving forward with delivery system reforms.  To further illustrate the impact of one example I’ve highlighted on CHIRblog, see this study by Truven Health Analytics, which provides a detailed analysis of the cost of cesarean births, which are sometimes performed unnecessarily.  Among the findings: C-sections cost 50 percent more than normal deliveries, and from 2004 to 2010, average out-of-pocket payments for all maternal care covered by commercial insurers increased nearly fourfold. If consumers are not yet fully bought in to efforts to improve quality of care, recognition of the financial impact of potentially unnecessary care may lead to increased consumer demand for reforms that deliver better value for their premium dollars.

What’s next in the drive towards higher-quality care?  As states and the federal government race to set up health insurance marketplaces by October 1st, delivery system reform has generally been a secondary focus.   With the pressure to bend the cost curve not going away anytime soon, watch for more purchasers – including health insurance exchanges – to push issuers to institute delivery system reforms such as those outlined in this model plan contract from Catalyst for Payment Reform.  And, you can keep track yourself through a new, searchable compendium of private-sector payment reform initiatives across the country.  In the meantime, CHIRblog will you posted on health insurance marketplaces as they continue to develop.

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The opinions expressed here are solely those of the individual blog post authors and do not represent the views of Georgetown University, the Center on Health Insurance Reforms, any organization that the author is affiliated with, or the opinions of any other author who publishes on this blog.