How Fortune 500 companies plan to cut health costs: Act like Medicare

March 27, 2013

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition — and read all previous columns here.


(Bryan Snyder - Reuters)

As General Electric's director of health services, Robert Galvin was the guy responsible for managing the health insurance costs of about 150,000 employees. The job wasn't easy — and, about five years ago, Galvin stumbled on some data that helped explain his challenges.

"I looked through all our contracts and the data, where we were spending $1.5 billion on health care," Galvin, now CEO of Equity Healthcare, remembers. "One percent of those payments were based on value. The rest was just pure volume."

The problem Galvin ran up against is one that is endemic to health care. For as long as we've had a health-care system, insurers have paid doctors and hospitals a fee for every service they provide. This isn't an especially unique model. Any widget-maker tends to earn more money for selling more widgets.

That's the whole goal in the world of widget sales — selling more widgets — but it's not the same aim for the health-care system. At GE, Galvin knew more widgets just meant higher health insurance spending.

GE could go to insurers and demand they change their payment models. It is, after all, the country's sixth-largest company. That's not a contract that a health plan wants to lose, but it still doesn't have the clout of large government programs, like Medicare and Medicaid, which cover millions of Americans. Because of that, both have been able to launch more aggressive programs that require doctors' performance to factor into their paychecks.

So, Galvin decided to do something a bit different, something that could make GE a bit more like those behemoth programs. He reached out to two-dozen other Fortune 500 countries and state agencies, who also had an interest in controlling health-care costs. That's how, in 2010, nonprofit Catalyst for Payment Reform emerged.

"If you get 20 other companies and a few state Medicaid agencies on board, now you can tell big insurers, like Anthem and Cigna, we want to change that," Galvin says. "You're talking about something that's much larger than GE."

The nonprofit's acronym, CPR, isn't a mistake: When the group first launched, its logo showed a map of the United States about to be shocked by two defibrillator panels.

Value-based payments were just about dead. When the group started, they did an informal look across the industry, trying to figure out if GE's experience was representative: While there was a lot of talk about paying for value in health care, was it actually happening?

The data suggested it wasn't: About 1-3 percent of the payments they looked at were tethered to the value of care. So the group set a goal: By 2020, the country should get to at least 20 percent value-based payments in the private sector.

"The idea was to choose a number that was both ambitious but also attainable," said CPR executive director Suzanne Delbanco. "We would definitely like to say more, but keep in mind, we were starting from basically no value-based payments."

CPR, whose members include companies like Home Depot, AT&T and Wal-Mart, holds quarterly meetings with the four largest insurers: Aetna, Cigna, UnitedHealthcare and Wellpoint. Sometimes, those can deliver concrete results: Delbanco recounts trying to take away incentives for unnecessary maternity care, such as overuse of C-section, which might not always lead to better outcomes — but would generate more payments to hospitals.

"We set a goal that, in two years, we wanted to see the way that maternity care was paid for, so you could remove the incentives for intervention when it's not needed," she remembers. "There's a tremendous amount of overuse."

One health insurance company decided, going forward, that all of their maternity contracts will be done in a way that there's no financial advantage in intervening in labor and delivery.

Still, the progress is slow-moving. CPR put out its first annual scorecard on Payment Reform on Tuesday, which found that 11 percent of all health care payments are based, at least in part, on the quality of health care delivered. To put it another way: Nine of every 10 health-care dollars do not factor in the value of care delivered, only in sheer volume.

The data in the payment scorecard isn't comprehensive but it does cover 45 percent of the commercial market, or about 70 million Americans with private insurance coverage. The data came from a survey sent out to dozens of health insurance plans, asking them to specify the number of payments where the quality, or value, of care factored into how much the provider, doctor or hospital received.

CPR Executive Director Delbanco says that, while the numbers are still low, the sense is they are moving in the right direction. Eleven percent is, after all, higher than the 1 percent they saw a few years ago.

That change has been reflected in the group's logo, too. Instead of defibrillators shocking the country to life, there's now a pulse sign.

"We're out of the intensive care unit," Galvin says, but then quickly revises himself. "Actually, we're probably still in the ICU. But we have a pulse, and the defibrillator is off."

KLIFF NOTES: Top health policy reads from around the Web. 

Tennessee wants to use the Arkansas approach to expanding Medicaid. Here's a key bit from the plan that Republican Gov. Bill Haslam put out Wednesday: "Leverage available federal dollars to purchase private health insurance for Tennesseans up to 138 percent of the federal poverty level who don’t have access to health insurance, which would translate to 175,000 more insured Tennesseans."

The actuaries think that premiums will rise 32 percent under the health law. "While some states will see medical claims costs per person decline, the report concluded the overwhelming majority will see double-digit increases in their individual health insurance markets, where people purchase coverage directly from insurers.  The disparities are striking. By 2017, the estimated increase would be 62 percent for California, about 80 percent for Ohio, more than 20 percent for Florida and 67 percent for Maryland. Much of the reason for the higher claims costs is that sicker people are expected to join the pool, the report said." Ricardo Alonso-Zaldivar in the Associated Press

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