This is the third essay in a three-part series looking at problems and solutions in the health-care marketplace. Read part one, on the main problems with the existing insurance system, here, and part two, on new attempts to sell insurance directly to patients, here.
“In health care, the days of business as usual are over.” So began an essay, published two years ago in the Harvard Business Review, by Michael Porter, a professor at Harvard Business School, and Thomas Lee, a physician. The two were proposing a new strategy centered on value-based health care—the concept of linking payment to the outcomes achieved, relative to costs, rather than to the volume of services provided.
The sea change to which Porter and Lee were referring was prompted by some new provisions of the Affordable Care Act, which had been passed three years prior, that were coming into force. Notable among the changes was the Medicare Shared Savings Program, in which groups of providers joined together in so-called Accountable Care Organizations could agree on certain goals for quality improvement and share cost savings. Also introduced was a bundled payments program, which, as the name suggests, pays providers per “bundle” of care instead of reimbursing each service, in hopes of promoting more cost-effective use of resources.
These changes have since given providers and insurers alike new motivation to adopt the sorts of value-based changes that Porter and Lee suggested—including, in particular, innovative payment models. “There is a really robust, exciting response going on right now to the challenge that sort of was ignited by the A.C.A.,” Seth Blackley, the president of Evolent Health, a company that helps providers establish partnerships with insurers, told me. In a survey conducted this year by Revive Health, a health-care communications firm, national hospital and health-system leaders indicated that they expected more than eighty per cent of their revenue for this year to come from volume-based reimbursements. The majority also noted, however, that some sort of initiative was underway at their organizations to transition to value-based care. These initiatives included pay-for-quality programs, risk-sharing agreements, and bundled-payment plans. Blackley predicts that in fewer than five years between half and three-quarters of Americans will be covered by some type of value-based structure.
To combine the delivery and financing of care, a health system has two options. It can create its own insurance plan, or it can partner with existing insurers. Evolent, which was founded in 2011, helps providers with both approaches. The first has the advantage of aligning the incentives of providers and insurers, since they’re part of the same entity. Kaiser Permanente, the largest nonprofit integrated-delivery system in the country, is a classic example. Lauded consistently as a top performer on key quality measures, the organization has attributed its success in part to its dual role as provider and insurer.
For systems that aren’t willing or able to underwrite the risk involved in creating their own insurance plan, the alternative is to negotiate contracts with existing insurers. This involves agreeing on a total cost-of-care budget, setting incentives for quality, and sharing cost savings. Once contracts are established, they last for several years, giving providers financial security and the freedom to innovate.
In the long term, these integrated models promise better management of chronic diseases, fewer readmissions, and lower costs. “It’s spurred providers to do things that there really was no business case for doing ten, twenty years ago,” Blackley told me. Evolent has developed a program called Transition Care, for instance, in which physicians, nurses, and health coaches build and implement care plans for patients who have been discharged from the hospital. The idea is that, by spending time with these patients, providers can insure that they’re following key instructions, potentially improving outcomes and avoiding costly readmissions. The results have been encouraging. In one of the integrated systems Evolent helped to develop, thirty-day readmission rates dropped by more than a third in the first year; in another, inpatient costs fell more than twenty per cent.
However, as compelling as the collaborative approach seems in theory, it has significant challenges to overcome. Insurers and providers historically distrust one another, and these perceptions persist today. When asked by Revive Health to assess insurers, hospital and health-system leaders assigned low ratings for fairness and declining marks for honesty and reliability. Providers worry that insurers won’t honor negotiated reimbursement rates, while insurers worry that providers will use loopholes to augment the claims they submit. This antagonism has been heightened by the fee-for-service model, and it may prove difficult to shed. Some providers, Blackley told me, expect to receive at least fifty per cent of cost savings to justify the effort required for integration. Not infrequently, providers and insurers are unable to agree on a mutually acceptable sharing scheme.
The logistics of implementing value-based practice, too, are tricky. While arrangements based on volume are relatively straightforward (five colonoscopies earn more than four), value is a more ambiguous concept. Defining value as outcomes relative to costs only begs the question of which outcomes matter and how they should be measured. Convincing physicians to change how they practice is difficult under any circumstance; convincing them to adopt a vague metric as a basis for reimbursement is even harder. It will be all the more challenging if providers have to keep track of multiple reimbursement standards, which may be the case during the initial transition. “As a physician, you can’t focus on thirteen different metrics,” Blackley said. “It cuts against common sense in terms of day-to-day workflow.” Practically speaking, providers are unlikely to focus on value unless a majority of their patients move to plans that demand it. This means that for the model to succeed, attracting a large enough consumer base to value-based plans is critical.
As competing models of health insurance evolve, they may find success in different niches. An integrated model makes sense in regions with large health systems, while the direct-to-consumer approach, which is being taken up by companies like Oscar, and which I wrote about in part two of this series, might be more effective if providers are decentralized. The two models also have the potential to succeed in different ways. Targeting consumers directly could encourage behavior changes that, through more effective prevention, help to reduce the overall costs of care over time. But improving outcomes for patients with chronic disease—the patients who account for most health-care spending—will require changing not only their behavior, but also the habits of their providers.
Eventually, the hope is that a single model will manage to engage both groups, combining grassroots influence over consumers with the structural improvements promised by new relationships between insurers and providers. Perhaps with this in mind, Oscar plans to build its own physician network as it expands geographically, in hopes of working more closely with providers, while Evolent is experimenting with ways to connect with patients, whether healthy or sick. In the near term, though, building momentum requires strategic focus. “We see a really competitive market emerging between these different models,” Blackley said. “The question is who are going to be the real winners as the market changes over the next two, three years.”
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