Report: Payment reform needed to move past recycling of healthcare expenditures

A comprehensive reworking of provider payment incentives could help U.S. consumers accumulate savings in healthcare costs of up to $600 billion over the next decade, according to a report released Dec. 5 by UnitedHealth Group's Center for Health Reform & Modernization.

The report, titled “Farewell to Fee-for-Service? A ‘Real World’ Strategy for Health Care Payment Reform,” also found U.S. physicians saying that care costs could be cut by an average of 18 percent without any impact on quality. Additionally, 59 percent of surveyed physicians reported meaningful differences in the quality of care provided by doctors in their local areas – although only 44 percent of consumers are aware of them.

“It is time to move past talk and convert the broad national consensus about the need to ‘pay for value not volume’ into action. Payment reform is only going to move the needle on U.S. health spending growth if it is implemented on a massive, industrial scale,” said Simon Stevens, executive vice president of UnitedHealth Group, and one of the paper’s authors, in a news release.

Speaking at the Forbes Health Forum in New York, Stevens said, “We will need to provide doctors and hospitals with constructive support during the transition, but savings ultimately have to flow to consumers and can’t just be recycled and retained within the healthcare system.”

The report cited federal government projections that national health spending will rise from $2.8 trillion to $4.8 trillion over the coming decade, accounting for nearly 20 percent of the U.S. economy. "Paying health care providers on a fee-for-service basis is one of the key contributors to the quality and cost shortfalls in the current health system, recently documented by the Institute of Medicine, among others," said UnitedHealth Group in a release announcing publication of the report.

Among the key findings:

1. Care provider payment reform has the potential to slow U.S. health spending growth and improve the sustainability of Medicare and Medicaid – but it won’t be a "silver bullet."
By looking at different scenarios for net savings and speed of adoption, the report estimated that care provider payment reform could slow U.S. health spending by between $70 billion and $1.01 trillion cumulatively over the coming decade, with more likely savings in the $200 billion to $600 billion range. Around half of those savings might accrue to Medicare and Medicaid.
That analysis suggests that payment reform could make a meaningful contribution to slowing the growth of U.S. health care costs, according to the report. However, even under optimistic assumptions about net savings and speed of adoption, U.S. health spending would continue to grow faster than incomes, suggesting that payment reform will need to be pursued in tandem with other initiatives.

2. New "real-world" data suggest innovative payment models can improve healthcare quality and affordability.
Empirical data presented in the report demonstrate that higher quality/more efficient care episodes cost on average 14 percent less – a result that helps quantify possible savings opportunities from episode-based payment "bundling" initiatives, according to UnitedHealth Group. The analysis drew upon performance data on the quality and efficiency of care provided by about 250,000 physicians in 21 medical specialties across the United States, accounting for more than 60 percent of covered health costs, the company noted.

UnitedHealthcare – described as the nation’s largest private payer in employer-sponsored, Medicare and Medicaid benefits –links more than $18 billion of its hospital and physician payments to value-based reimbursement mechanisms, according to the report. Those mechanisms span the spectrum from pay-for-performance, through various forms of payment bundling and risk-sharing. "While some of these approaches are mature and widespread, others are at earlier stages of testing," UnitedHealth Group said.

3. Moving away from fee-for-service to payments that reward value not volume masks some important uncertainties and implementation tradeoffs, and care providers will need active support to make the transition successfully.
A Harris Interactive physician survey revealed mixed views about the fee-for-service system, indicating that the fee-for-service reimbursement model is ingrained in the U.S. health care system and will take time and effort to replace. Physician responses reflected only modest current support among physicians for more broadly adopting pay-for-performance initiatives: About 33 percent of physicians said that the percentage of reimbursed services based on cost or quality of care should be increased, while 28 percent said it should stay the same. In addition, only 28 percent of doctors thought that practices in their area were prepared to assume greater responsibility for managing their patients’ care, and only 12 percent were prepared to assume greater financial risk for that care.

The report also discussed a number of likely trade-offs inherent in new incentive and payment models, and their implementation. Among the questions raised:

  • What is the right balance between local adaptation vs. national uniformity, particularly in public programs?
  • Where should the tradeoff be between clinical sophistication vs. ease of administration and scalability of new incentive structures?
  • Will greater financial risk-sharing by care providers accelerate consolidation that in turn drives costs higher?
  • To what extent will gross savings be used to incent care provider participation, as compared to being released as an efficiency “dividend” to lower healthcare costs for families, employers and governments?
  • How can multipayer initiatives be advanced that are easier for care providers to respond to, but which may result in slower “lowest common denominator” solutions?

Click here to read the full report.