Payers Drive Value-Based Healthcare Reform

As change continues to reverberate throughout the healthcare industry, health insurers are well-positioned to influence greater cost efficiencies.

For millennia, divinity was the guiding force in medicine, through the healing hands of the local priest and shaman.

Then 2,500 years ago, the Greek physician Hippocrates helped launch the Scientific Revolution, which transformed Western medicine. A pledge "to do no harm" became the first patient-centered medical maxim and scientific diagnosis was elevated over the divine.

Now, at least in the United States, medical advances based on the laws of science appear to be butting up against the laws of economics.

With some medications costing $1,000 per pill and inpatient hospital bills often breaking the $100,000 mark, healthcare payers from Medicare to insurance companies to private citizens are finding ever-increasing medical costs unbearable.

"There are finite resources. Economics is the study of finite resources," David Friend, who holds a medical degree from the University of Connecticut and an MBA from The Wharton School at UPenn, told me recently.

"Healthcare is part of the finite resources the country has… Everything else is going to get crowded out. Something has to give if you can't raise taxes and roads and bridges are falling apart. The answer is to become more efficient."

Friend, who was recently named leader of clinical strategy at BDO's Center for Healthcare Excellence and Innovation in New York, told me the growing influence of consumers is sealing the deal for a more cost-effective approach to the practice of medicine. "The population will demand more accountability," he says. "Most people are going to be paying out of their own pocket… That's going to force the discussion dramatically."

A Letter to Healthcare Providers from a Consumer

One consequence: Patients who can't pay will forego care. Under that scenario, everyone loses. So across the US healthcare industry, payers are exercising their power to prod cost efficiencies out of providers.

One area that's ripe for a cost-efficiency makeover is spinal surgeries. More specifically, as I've reported, public and private payers are seeking to rein in explosive growth in spine fusion surgery. Medicare officials claim that more reliance on conservative approaches to treat back pain such as physical therapy could save taxpayers millions of dollars on avoidable spine fusion procedures.

Joseph Gregory, an analyst at London-based GlobalData who has been researching the growth in spine fusion surgery over the past decade, told me payers are essential players in the push for less costly spine treatments. "The financial incentives really need to be in there to stop unnecessary procedures," he told me.

In many areas of the United States, the drive for cost containment and payment reform is reaching far beyond individual medical procedures. In some places, economics are fundamentally transforming the practice of medicine in a way that only science could before.

Primary care medical homes are a prime example of payment policies driving healthcare reform down to the physician level. Whether you are a salaried doctor at an insurance co-operative's medical home in suburban Maryland or a physician leading one of the new gain-sharing medical homes in Arkansas, cost is a bigger factor than ever in the mental calculus that physicians perform when treating patients.

Arkansas, which is set to release more first-in-the-nation gain-sharing data next month, is using medical homes as part of a payment-driven effort to recast physician practices throughout the state.

With Medicare waiting in the wings, most payers in the state are participating in the Arkansas Payment Improvement Initiative, which is built on medical homes and a gain-sharing program that is setting cost standards for "episodes of care" ranging from upper respiratory infection to congestive heart failure.

Last week, Arkansas Surgeon General Joseph Thompson MD told me that economic considerations are playing an appropriately crucial role in US healthcare reform initiatives.

The architect of the Arkansas Payment Improvement Initiative says the study of finite resources is among "the major influencers on the medical profession: data, which exposes causative agents for bad health; economics exposing the cost of both success and failure; and advancing science that empowers us with new tools for judicious use. These things will transform medicine."

And Arkansas physicians are generally supportive of the state's ambitious payment reform effort because they were invited to help design the new system, David Wroten, executive vice president of the Arkansas Medical Society, told me this week.

"We've included physicians in the ground floor of these programs," he says. "The Medicaid program sought out physician input early on… It's made a difference."

While acknowledging that economics are along for the healthcare reform ride, Wroten insists medicine is in the driver's seat. From the physicians' point of view, the top goal of healthcare reform efforts should be "changing the payment incentives to incentivize the right care," he says. "The end result is better patient care and lower costs."