curing an ill healthcare system transparent multilateral benefits, cost, and quality

The U.S. healthcare system requires a new health insurance benefits structure if it is to realize the full potential of value-based care.

In October, the online Masters of Public Health program at George Washington University listed the top 14 organizations in the United States pushing for transparency in healthcare cost and quality.3 On the list are privatesector start-ups (Castlight Health, Change Healthcare), philanthropies (California Healthcare Foundation), associations (Council for Affordable Health Insurance, HFMA), institutes (Health Care Cost Institute, Health Care Incentives Improvement Institute) and not-for-profit advocacy groups (Catalyst for Payment Reform, Clear Health Costs).

Although each entity approaches these challenges from different angles, all share the same objective. The article quotes Neel Shah, MD, the founder and executive director of Costs of Care, as saying:

In 2014, we make purchasing decisions for every other commodity based on transparent price and quality information. Why not health care, too?

The question may shock, but for employers sponsoring health benefits, the matter cuts to the core of their future profits and prosperity, especially given the current structure of health plan benefits and the looming Cadillac tax driven by the Affordable Care Act (ACA). The solution we suggest has the potential to lead our nation to a more rational healthcare system that provides both health and economic benefits for all.

Let's understand why.

Emerging Transparency

The transparency revolution of the past 10 years is, ironically, a by-product of health plan benefits that have high deductibles and coinsurance. It's also a revolution that no current healthcare stakeholder-whether a hospital, specialist, health plan, pharmaceutical company, durable medical equipment manufacturer, or other status-quo incumbent-wants to see happen. Although the outcome of that revolution has yet to fully play out, we can see the outline of a true market for healthcare services emerge.

As a result, many providers are scrambling to develop new quality measurement programs so consumers can make choices based on more than just price, and they are actively coordinating these efforts by medical specialty. For instance, the Society of Thoracic Surgeons has been actively engaged in defining evidence-based quality measures for adult cardiac, general thoracic, and congenital heart surgery, seeking to organize effective recognition programs to improve care. Many of these measures, in turn, have been endorsed by the National Quality Forum and picked up by the Centers for Medicare & Medicaid Services'Physician Quality Reporting System.

In some instances, providers are making the mistake of picking measures that will make all their peers look good.b Many, however, are working hard to measure quality rigorously. The upshot is that we're quickly moving from an opaque and paternalistic system to a system that is transparent and driven by consumer action- a move reminiscent of the financial industry's transition from local banks and savings accounts to online day trading and mutual funds. But even if we had a transparent healthcare system, the prevailing benefits structures would tend to nullify its true potential.

The problem revolves around unilateral fee-for-service (FFS) deductibles and coinsurance, a layer of cost exposure for consumers that that does not reflect clinical value, has virtually no clinical nuance in its design, and has outlived its usefulness. Once consumers have met their deductible and/or the out-of-pocket requirements, price is no longer of any real consequence and transparency ceases to be of any use to them.

For example, if patients needing hip replacements were presented with competitive prices- currently averaging around $25,000, with a $2,500 deductible, an out-of-pocket maximum of $6,500, and then full coverage-$16,000 of the full-market value would remain in the dark, at least in terms of incentives. Unilateral deductibles and coinsurance slice up the value, rendering much of it fuzzy or opaque and making price competition meaningless. Flatly stated, current health plan benefits are designed not for value, but to shift more and more of the premium cost to consumers. How can we alter our obsolete FFS benefits system to bring value-based purchasing to life?

Benefits to Create Incentive for Consumers and Employers

One approach would be to make the deductible layer "smart." What if, instead of a single deductible that's applied uniformly across all services, plan members had a number of funds, one for each medical episode? Let's call them Medical Episode Savings Accounts (MESAs). One could be for routine preventive care and another for routine sick care, for instance, so a patient with a couple of chronic conditions would have a chronic care account. And if the need for a procedure arises, the patient would have an account for that as well. The accounts would be virtual and funded based on the historical averages for such medical episodes, adjusted for severity of the condition and the demographics of the plan member; the account funds would be paid out before the patient is hit with a deductible or out-of-pocket costs.

The preventive care account would be "use it or lose it" to encourage preventive care, and a portion of the chronic care account would be the same. Skimping on needed care that could prevent avoidable complications would not trigger a new MESA for any such complication, but would deplete the account and then trigger the deductible and coinsurance, taking money out of the healthcare consumer's pocket. Health plans would provide information on the price and quality of providers offering services for specific medical episodes, and the consumer would be free to choose among them. In short, a MESA-style system of benefits would feature a multilateral deductible, fine-tuned to clinical nuance and designed to improve patient and provider incentives.

With multilateral deductibles, it would make sense for providers to compete on price and quality because consumers would have not only access to cost and quality information, but also the means and incentives to make use of that information. Providers offering competitive bundled payments would shield consumers from potential financial risk-an appealing trait.

Based on our total hip example, a MESA benefits system would trigger a total hip account for this procedure, calculated at the market average. In Tallahassee, Fla., for example, where the market average is $35,000, Tallahassee employees with MESA accounts would see a total hip benefit of $35,000, with a $3,500 deductible and $6,500 out-of-pocket max. Through their transparency tool, they would also see multiple orthopedic providers offering total hip procedures in a range of prices (competing for market share). Patients could take their benefits anywhere they want to go, including out of network. But why would they? If they go to providers that either meet or do not fully exhaust the MESA benefit, they not only would be shielded from any out-of-pocket costs, but also could potentially receive a rebate incentive-a bonus of sorts.

How It Could Work

Imagine that! A benefits system that sparks provider competition and from which consumers can actually make money for wise decisions!

The same would hold true for chronic conditions. Under today's unilateral deductible, if Maty Smith is diagnosed with diabetes, any cost below $3,500 is on her dime, with coinsurance exposure up to $6,500. This situation creates a disincentive for Maiy to see her physician on a timely basis and comply with her medication regimen, which could result in a costly emergency department admission if she were to experience an avoidable complication.

But with a MESA benefit, Mary would see her account stocked with $8,000, the average cost for a year's worth of evidence-based diabetes care (the dollar amount would go up for comorbid conditions). She would receive first-dollar coverage for clinically indicated services as well as for seeing primary care physicians or recognized patient-centered medical home providers who accept a fixed-rate contract for caring for patients like Mary. After the $8,000, Mary has a $3,500 deductible and an out-of-pocket max of $6,500. Because her selected provider accepts a fixed-rate contract, and she has a cost exposure above $8,000, both she and her provider have profound incentives to manage her diabetes well and prevent avoidable complications.

And here's where things get really interesting. In May 3or3, the 1RS, U.S. Department of Health and Human Services, and U.S. Department of Labor created a new wellness rule that would allow Mary's employer to rebate up to 3o percent of Mary's full premium cost back to her if she were to succeed in maintaining or improving her condition. Although the rule, as with all government rules, is a bit more complex than explained here, prudent behavior on Mary's part could raise her yearly take-home pay. If her plan costs $7,500 per year (combining her monthly contribution with her employer's), then she could receive up to $3,350 a year in additional income if she meets evidence-based guidelines (i.e., maintaining an appropriate blood sugar level) and keeps her MESA diabetes account at or below $8,000 per year.

This observation brings us back to the Cadillac tax. In 3018, for individual plans with an actuarial value exceeding $10,300 and family plans exceeding $37,500, the government will impose a 4,0 percent, nondeductible excise tax. A recent Towers Watson study projects that 48 percent of large, self-funded employers will be hit by this tax as soon as it kicks in.c If drastic steps are not taken in payment and benefits reform, that percentage will rise every year after 2018, potentially amounting to <money>$80 billion over 10 years. That's $80 billion in pure deadweight loss to U.S. companies, cutting even more deeply into their bottom lines than healthcare costs already do-and adding no value whatsoever to either corporate or employee well-being.

A $2,250 rebate to Mary may seem like a lot of money to an average employer, but that amount pales when compared with the amounts employers pay every year for poorly managed FFS care of diabetes, not to mention all other chronic diseases, and with the inexcusable variations in FFS prices and utilization costs paid by employers and employees. If moving to a multilateral MESA system with handsome wellness rewards keeps Mary and other patients out of hospitals and productive at work, the change seems well worth it-especially if it helps employers avoid the Cadillac tax.

Sharing the Risk

If Congress continues to uphold the Cadillac tax, employers-and by extension, providers-need to start working immediately. Bundled episodeof-care payments and MESAbeneftts plans represent a dramatic change, and current health plans and third-party administrators are not capable of operating such a model at scale.

There is little reason to doubt that many provider groups and health systems want a more rational payment system and are willing to make painful changes to accommodate value-based payment. But employers often pose a significant obstacle to such change, and if employers aren't willing to fundamentally change their employees' benefits plans, why should providers take on all that risk? It's an excellent question.

Even "best in class" providers can only do so much to improve population health and the accompanying costs. Employers should band together and start demanding these changes. Employees as consumers/patients also should have a stake in the game. Cost and quality transparency make all the sense in the world alongside something like a MESAbeneftts system with clinically nuanced benefits; indeed, it would propel the healthcare reform movement forward. And from all this, a true market for healthcare services would emerge.

Our fee-for-service healthcare system has been a drain on national wealth for decades, and indeed, the cost excesses associated with unnecessary care services delivered under the volume-based payment system were a major driver of healthcare reform. As long as we operate in an opaque payment and benefits system, the misallocation of healthcare resources will continue to undermine efforts within our nation's healthcare system to deliver high-quality care. With the emergence of a genuine market for healthcare services, we may observe something profound: A competitive, transparent pricing system coupled to episode savings accounts could transform our current system into one that promotes healthy behaviors and contributes to the well-being of individuals, providers, and employers. *

AT A GLANCE

A transparent, smart, multiláteral benefits system can lead the way to healthcare reform with health and economic benefits for all based on:

*Provider competition guided by quality measurements, clinical nuance, and price competition

* Shared risk among consumers, employers, and plans

* Economic incentives for all parties

a. Newhook, E., "Illuminating Health Care Prices: Organizations to Watch," MPH@GW Blog, Milken Institute School of Public Health, George Washington University, Oct. 8,2014.

b. For an excellent discussion on this problem, see Silber, J.H., et al, 'The Hospital Compare Mortality Model and the VolumeOutcome Relationship," Health Services Research, October 2010.

c. 'Nearly Half of U.S. Employers Expected to Hit the Health Care 'Cadillac' Tax in 2018 with 82% Triggering the Tax by 2023,' Towers Watson press release, Sept. 23,2014.

About the authors

Douglas W. Emery

is program implementation leader,

Western Region, Health Care Incentives

Improvement Institute (HCI3),

Newtown, Conn.

([email protected]).

François de Branles

is executive director, HCI3,

Newtown, Conn.

([email protected]).