Southern governors discuss efforts to contain health care costs | Arkansas Blog

Sunday, August 17, 2014

Southern governors discuss efforts to contain health care costs

Posted By on Sun, Aug 17, 2014 at 10:47 AM

click to enlarge BEEBE: "More convinced than ever that fee for service is an unsustainable model for the payment of health care."
  • BEEBE: "More convinced than ever that fee for service is an unsustainable model for the payment of health care."
Most of the coverage of yesterday's Southern Governors Conference panel on health care reform was focused on coverage expansion and the Arkansas private option (you can read my takes here and here). 

But there was just as much talk on payment reform — Gov. Mike Beebe argued that while it has gotten less attention, the state's Payment Improvement Initiative is an equally important development in health care reform in the state. Beebe said he was "more convinced than ever that fee for service was an unsustainable model for the payment of health care in this country."

You can read about the Initiative here (plus more recent coverage here and here) but the basic idea is a financial incentive structure for providers designed to aim for high quality of care and lower costs. The incentives are centered on an entire episode of care rather than individual procedures in isolation, and one provider acts as the "quarterback" coordinating the episode of care (this principal provider is the one with skin in the game — with potential rewards for cost containment or penalties for exceeding the acceptable threshold). The key innovation in Arkansas was not only implementing the initiative for Medicaid and state-employee insurance, but also getting buy-in from the big private insurance companies like Blue Cross Blue Shield, as well as Walmart, which self-insures its employees. With the big private payers using the same system, providers could respond to the same incentives.

"The Medicaid program itself, which is the primary payer program at the state level, along with employee benefits, was critical —it's a huge focus for the state, but it's very difficult if not impossible to actually change payment without considering the role of the private sector," said Tom Latkovich, a McKinsey consultant who worked with Beebe administration on health care, at yesterday's panel. "From the beginning, the idea was not to be directive and tell everyone what to do, but to try to coordinate with and align with the private sector as much as possible, and Arkansas has been to date very successful with that."

Getting the private sector on board with the state initiative was crucial, Latkovich said, because from the provider perspective, "every payer in Arkansas represents a portion of their spending. If a hospital, provider, or doctor has to do something different for six, seven, ten different payers, it becomes incredibly difficult for them to change, so it becomes awfully important to have some level of alignment." 

It's too early to say anything definitive, but early returns suggest that the Payment Improvement Initiative is leading to slower per-capita spending growth in Medicaid and reductions in inappropriate hospitalizations and treatments. 

"From the beginning, the goal has been to take every dollar of health care spending, whether it's in the public or the private sector, whether it's primary care, it's acute care, it's mental health care, and transition that to reward outcomes," Latkovic said. "To reward providers who do a better job delivering patient's health and solving their medical problems. The notion of trying to transition away from fee for service has been around for a long time. The challenge has been how to get there. ... What Arkansas has done a terrific job of is moving the system in that direction. You already have quite a substantial portion of spending in these models."

Both Latkovich and Beebe said the next step was to get another big payer on board: "Medicare needs to be in the middle of this," Beebe said. 

On that front, one place to look for a model might be Maryland, which received a Medicare waiver to do just that. "We have moved all of our hospitals away from fee for service and they're all being paid on a global basis," said Gov. Martin O'Malley. "Which means that we have aligned the profit motive for these hospitals so that they get paid not on, like a hotel, how many beds they can keep filled...but they get paid on keeping people well, keeping people out of the hospital." O'Malley said that Maryland had reduced avoidable hospital admissions by 11.5 percent in the first year of the waiver. 

The Affordable Care Act was more focused on coverage expansion than cost containment, and the push to increase access to insurance has gotten more attention, to say the least, than the wonky details of payment reform. But the goal of universal access to affordable health care depends on reigning in costs. The state is already a success story in terms of providing more of its citizens access to the health care system. If the private option proves to be sustainable in Arkansas, it may well depend on how successful efforts like the Payment Improvement Initiative turn out to be in making that health care system more efficient, cost-effective and high quality. 

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