Reform Basics

Much effort is going into reforming Connecticut’s and the US health system – to improve quality and control costs. Efforts are focused on improving the delivery of healthcare to be more effective and patient-centered, as well as payment reforms to control rising costs. Despite much effort, few reforms have demonstrated success and they carry significant risks of unintended consequences such as lowering patients’ access to care, creating monopoly health systems, opportunities to “game” the system, and increasing prices of care. Challenges to reform include the costs, provider resistance, and inadequate data and analytic capacity.

Reform Deeper Dive

What are the goals of healthcare reform?

There is a strong consensus that our healthcare system is broken and needs reform. Unfortunately, there is less consensus on how to do that, who is to blame, who should shoulder the burden of reform, and what a fair healthcare system looks like.

Healthcare costs are consuming a growing share of the US and Connecticut’s economies. Costs for care have been rising faster than general inflation, wages, and the rest of the economy. There are concerns that this rate of increase is not sustainable and will force employers, government, small businesses, and consumers to sacrifice other important priorities.

There are also concerns that access to care and the quality of that care are inadequate – that we aren’t getting what we’re paying for. The latest federal report finds that the quality of healthcare in Connecticut is just average, and it’s not improving. These concerns are especially important for underserved communities leading to growing disparities in care in both Connecticut and the US.

A commonly cited framework for reform is the triple aim model, first developed in 2008 by the Institute for Healthcare Improvement. Fourth and fifth aims have been added since. The goals of the quadruple aim are to simultaneously:

• Improve the health of whole populations in addition to the traditional medical system’s focus on individual health
• Reducing healthcare costs
• Improving patients’ experience of their care, including quality and satisfaction
• Improving healthcare providers’ satisfaction and addressing burnout
• Reducing inequities in healthcare

Reform is often divided into delivery reform — changing how care is provided to patients — and payment reform – how providers are paid for their services. There is a great deal of overlap between these, and many  reforms attempt to improve both delivery and cost.

Care is often divided into high and low value care. These are identified through comparative effectiveness research, which distinguishes between treatments that both improve health and are cost effective, and those that are neither. Unfortunately, Connecticut has a lot of room to improve on the value of care in our state.

• High value care is the ideal. These are treatments and care that are proven to improve or maintain our health, at a price that reflects the value they provide. Examples of high value care include childhood vaccines, tobacco use screening and cessation treatment, screenings for colorectal and cervical cancer, sexually transmitted diseases, hypertension, and unhealthy cholesterol levels.
• Low value care is services with little or no clinical benefit, and often cause harm. These services provide little benefit for the cost, can trigger unnecessary, harmful follow up care, and waste resources. Unfortunately, low value care is very common and progress to reduce it has been limited. Examples include imaging early for low back pain, diagnostic testing before low-risk surgery, and antibiotics for respiratory colds. 

Why didn’t managed care solve this in the 1990s?

Health reform efforts are not new. In the 1990s, new private “managed care plans” (also called Health Maintenance Organizations (HMOs)) promoted by insurance companies, promised to lower the costs of healthcare by coordinating care, sorting out what care each patient needed (and what they didn’t) to help patients heal and stay healthy. Insurers and in some cases healthcare systems were paid a flat fee based on predictions of their patients’ healthcare costs rather than paying for every service patients need. This is termed a capitated payment model. The concept was that it was in the plans’ best interests to invest in keeping patients healthy, as they would profit from reductions in more expensive care such as hospitalizations, medications, and office visits to treat conditions that could have been prevented with early primary care. 

Unfortunately, managed care didn’t work as well as expected. For a time, managed care insurers were successful in lowering the prices they paid to providers, but the savings weren’t sustainable. In the 1990s, providers were not organized into large health systems.  Connecticut especially had many small practices that could not negotiate collectively with large managed care plans to get high prices. Managed care worked well to lower provider payment rates and, for a time, costs stabilized.

But managed care never delivered on the promise to manage patients’ care. Healthcare delivery today is as fragmented it was before the 1990s. Coordination required the cooperation and leadership of providers, at the same time their payment rates were decreased. In addition, managed care created a strong public backlash when patients were denied care and most of the private market moved away from managed care.

An important part of managed care’s failure in the 1990’s was that there wasn’t enough data on the healthcare system – on the quality of care, access to care, or the costs. Many feel that because there has been progress on healthcare data and analytics since then, capitation and similar payment models from managed care will work now. However, there are still large gaps in healthcare data use including analytic capacity and connecting what we’ve learned to needed policy and practice changes. Too often we get stuck looking for perfect data, and don’t connect the dots we uncover. Connecticut healthcare has a lot of work left to become a learning system that protects patients and efficiently uses resources.

Unlike in private coverage, managed care has persisted and grown in Medicaid. Currently all but five states, including Connecticut, use Managed Care Organizations to operate their Medicaid programs.

In response to extreme cost increases and poor quality performance, in 2012 under a new administration, Connecticut Medicaid ended their contracts with private Managed Care Organizations that were paid a capitated flat rate per-member to provide care instead of paying for services delivered. The program moved to self-insurance by the state, where the state pays providers directly for services they provide. The program is operated through an Administrative Services Organization, CHNCT, with a focus on care coordination.

Since moving away from managed care organizations to care coordination, Connecticut Medicaid has saved billions of tax dollars while the quality of care, access, delivery of preventive care, and patient satisfaction have improved. Other states have also found that MCOs didn’t save money or improve quality.

What is being tried to reform the delivery and quality of healthcare?

The quality of healthcare, in the US and in Connecticut, is not worth what we are paying for it. Several initiatives are attempting to improve quality and access to care. Some have been more successful than others.

Patient-centered medical homes (PCMHs) are the most successful delivery innovation to date. PCMHs are primary care practices that provide extended hours, coordinate care for patients, make appointments for patients with specialists, follow up after ED and hospital admissions to prevent relapse, enable teams of clinicians to provide comprehensive care to patients, manage medication use, and offer extra services as needed such as nutrition and behavioral healthcare. To reimburse PCMHs for these extra services, they are usually paid a monthly per-member fee above usual payments for services. (Connecticut’s HUSKY program is an exception, paying PCMHs higher fees for services rather than a set per-member fee.) PCMHs must be certified by an independent, national certification body using evidence-based standards to receive the extra payments. PCMHs track the health and needs of their entire population of patients, anticipating and meeting their needs – medical and social. PCMHs have a well-documented record of improving access to high quality care, improving both patient and provider satisfaction, preventing health problems, and reducing overall healthcare costs. PCMHs in Connecticut started in Medicaid when the program shifted away from Managed Care Organizations but is now common across coverage plans. HUSKY’s PCMH program has continued to expand and improve care for patients over the last decade.

Accountable Care Organizations (ACOs) are large, integrated health systems of doctors, hospitals, home health agencies, and other providers. The concept behind ACOs is that providers integrated into a single system should coordinate care and communicate better which will improve quality while reducing fragmentation and duplication of services. ACOs are paid more if the total cost of care for their patients is lower than expected. The concept is that coordinated care and improved communication will reduce duplicate services and that letting providers share in savings would reduce their incentives to provide low value care.

Unfortunately, after decades of effort and investment, there is little evidence that ACOs have improved either quality or cost savings. While ACOs have to meet some quality standards to receive payments, so they won’t save money by denying necessary care (also called stinting) and avoiding more costly patients (cherry-picking). Unfortunately, the quality standards are very low and are mainly process measures rather than meaningful improvements in the health outcomes of patients. And there is evidence of ACOs cherry-picking more lucrative patients.

There are several associated initiatives that can supplement delivery reforms.

Health Information Exchanges (HIEs) are networks allowing providers treating the same patient to share information. Functional HIEs can improve patient safety and the quality of care by removing conflicting treatments and duplication of services. Unfortunately, despite years of effort and substantial taxpayer investments, Connecticut’s HIE, Connie, is not functioning. Connie has also been plagued by choices that jeopardize patients’ privacy and by financial scandals.

To address the Social Determinants of Health that are important to patients’ health, insurers and large health systems are also connecting to community social services. These include secure housing, healthy food, and community safety. Support for primary care, especially for underserved communities, is rising to prevent more costly health problems. It is hoped that integration of behavioral health into primary care will improve access to critical care. Unmet mental health and substance use needs raise total healthcare costs.

What models are being tried to reform healthcare payment?

Healthcare payment reform terms are confusing, with different names for the same model and the same term being used for different models. It can be deliberate. A consultant working in Connecticut admitted in a public meeting that they chose to misname their model to avoid criticism. (Thankfully, a very smart state administrator in the meeting called them on it.)

It’s important to look at the details of any payment model proposal. Even clearly described and accurately named proposals can differ in important ways that matter to different interests and groups. There are good glossaries of healthcare payment terms here and here. But look at the details in any case.

Almost all payment reform proposals are described as Value-Based Reforms). Value in healthcare includes both quality and cost. Value-based reforms are designed to reward both quality improvement and cost control. A related term, Value-Based Purchasing (VBP), also called Alternative Payment Models (APMs), link provider payments to improved quality and cost efficiency.

Providers have enormous control over healthcare use, through providing it themselves and through referrals to other providers and orders for tests, medications, and other care. According to The Cost Conundrum, ”The most expensive piece of medical equipment, as the saying goes, is a doctor’s pen.”  

In healthcare’s traditional model, Fee For Service (FFS), where providers are paid for each individual service they provide, clinicians make more money by providing more services, necessary or not. In this economic view, to reduce costs, reforms must give providers incentives to reduce unnecessary care and expand access to effective care. Value-based reform are designed to pay providers more for high quality care and better patient outcomes, but less for unnecessary, ineffective care. It is also important to acknowledge that simple economic models do not explain the wide diversity of human behavior. Training, culture, competition, and intrinsic motivation to heal patients are at least as important for clinicians as financial gain.

There are three main categories of Value-Based Reforms. The underlying premise of each is to move financial risk onto providers meaning that they make more when their patients cost less. Participation in value-based payment models is voluntary for providers and health systems. It is not voluntary for patients. A full typology of payment models includes a dizzying number of sub-categories.

Shared savings – in Connecticut, this can be called bundles, which is a different thing outside Connecticut

In shared savings models, providers and health systems share in any cost savings they are able to generate in their patients’ care costs. During the year, providers bill for services under FFS. There are two types of shared savings. At the end of the year, if the total costs of care for their patients is lower than expected, providers and health systems will receive a pre-arranged share of those savings. In One-Sided Risk (also calledUpside-Only Shared Savings), providers and health systems receive a smaller share of any savings (typically 50%) but are not charged for any losses if patients cost more than expected. In Two-Sided Risk (also called Upside-Downside Shared Savings) providers and health systems receive a higher share of any savings but must share in losses by paying back funds if patients’ costs of care are higher than expected.

Bundles – also called episodes of care, case-base payment

Rather than payments to individual providers for each specific test or treatment, in bundled payment models all the providers involved in caring for a patient during one healthcare episode are paid a single lump sum to cover all the costs of care. Episodes are the entire course of an illness, condition, or medical event. Examples of bundled episodes include knee replacement, breast cancer, maternity and newborn care, diabetes care, or behavioral health condition. Most Connecticut hospitals (86%) use bundled payment models. The intent is that bundling payment will encourage providers to coordinate care, lower costs and improve quality.

Capitation – also called population-based payment, prospective payment, global budgets, modernization (mainly used in Connecticut), bundles (deceptive as bundles are a different model, again only in Connecticut), lump-sum payments

Under capitation, providers are paid a set fee per patient to cover all their patients’ care for a specific period of time, including care delivered by other providers. The fee is paid at the beginning of the time period and is based on expected healthcare costs using local prices and utilization patterns. If patients’ costs are ultimately higher than expected, the provider practice or health system must cover those costs. If patients’ costs are lower than the capitated fee at the end of the contract, the practice or health system gets to keep the extra funds.

Reference pricing is another payment reform to lower prices for care. Reference pricing links private insurers’ rates to Medicare’s payment levels, rather than negotiating from inflated list prices. It’s estimated that private insurance costs would have been $352 billion lower in 2021 using Medicare payment rates. There are concerns that lowering insurers’ payment rates will reduce access to care, but the large majority of physicians accept the lower Medicare rates. While lower than the US average, 84% of Connecticut physicians take new Medicare patients, compared to 91% for privately insured patients.

In 2016, Montana’s state employee plan switched from negotiating hospital payment rates to reference pricing using Medicare rates as a benchmark. While there was serious resistance from a few hospitals, all eventually signed onto the new program, and none are out of business. Before the switch Montana was paying up to 322% of Medicare rates for some services. Between 2017 and 2019, the state saved $47.8 million.

What are the risks of payment reform?

There is a consensus in healthcare economics that providers drive a great deal of healthcare use, necessary and unnecessary, because patients rely on them to make decisions and explain options. There is also consensus that large, monopoly health systems drive up prices, without any increase in value. Consequently, most payment reform models try to turn incentives around to reward providers and health systems for lowering the total cost of care.

Holding providers accountable for the quality of care is key to successful reform. As one health system administrator commented, “In a value-based world in which there are no quality metrics, the best patient is one you never see. The consequence of never seeing a patient though is that you don’t perform any preventive tests, or you don’t pick up illnesses at an early stage.”

Responding to these new incentives, there are several ways for providers and health systems to save money. One is to provide care that prevents and manages costly health problems to keep people well. This is the goal of reformers.

Unfortunately, there are also irresponsible ways to generate savings that harm patients and cost more. One is to deny patients needed care and hope for the best, or that the costly consequences will happen when they are no longer in your plan. This is termed underservice or stinting on care.  Another way to save money is to avoid enrolling less lucrative patients. This is termed adverse selection or cherry-picking. Patients could be avoided for many reasons including if their care is not as profitable to the provider or health system, because patients are difficult, taking more time and effort for providers, patients do not follow recommended treatment (often labelled non-compliant), do not have resources to follow up on care, or take extra time in care visits such as non-English speakers or people with disabilities.

Two fraudulent ways to save money are to “game” risk adjustment and upcode in billing. Risk adjustment is intended to modify payments based on patient needs (medical, and increasingly social needs). However, risk adjustment is not a mature science and is often gamed by health systems to increase revenue without improving quality or services. Providers and health systems can also increase revenue by up-coding or billing for more expensive diagnoses and procedures than warranted.

Recognizing the risk of underservice, most payment models include quality standards that must be met as a condition of payments. However, most quality measures used in payment reforms are easy to measure, often self-reported by the provider, and not related to positive health outcomes for patients. Too often, provider groups that will be accountable for the quality measures are involved in setting those measures.

Under capitation, that pays providers per patient rather than per service, providers and health systems profit by increasing the number patients they are responsible for, and consequently paid for. This squeezes already-tight provider schedules and reduces patients’ access to care.

Another risk of payment models, especially those that consolidate providers into large health systems, is anti-leakage efforts. Large health systems, Accountable Care Organizations lose profits when patients choose to, or have to, go to providers outside their system for care. Consequently, many ACOs use technology and penalties to primary care providers to reduce referrals to outside providers. However, these efforts limit patient choice because they don’t know about better options or treatments they are never told about. This falls heavily on patients getting sensitive care such as mental health and women’s health where a good match between patient and provider is critical.

Another risk of payment reform models is to public health and community services’ capacity to serve non-medical needs that impact health, such as housing, healthy food, and public safety. Under payment reform, the savings from community services keeping people healthy go to the medical system, to providers, health systems, and payers, rather than back into the community and public health organizations that created the savings.

Asking provider organizations to take on financial risk can backfire badly. Insurers are required to carry financial reserves for bad times, but there is no such requirement for providers. If they miscalculate rates or hit a run of bad luck, they may have to slash unprofitable services, layoff staff, close facilities, engage private equity investment that further erodes the finances, or potential bankruptcy. This reduces access to care in communities, harms the healthcare workforce, and limits consumer choice.

Payment models can be more or less susceptible to these risks.

While risk mitigation is never perfect, there are provisions payers and providers can take to reduce the risks. All of these require robust data and analytic systems and the will to follow through on what is found.

• Meaningful monitoring for underservice, adverse selection, and other risks, with follow up to remove identified risks
• Robust quality improvement standards, that are evidence-based and reach across the entire patient population
• Crafting incentives  and policies to emphasize health status improvements over process
• Robust evidence-based, independent patient experience of care surveys that reach a random sample of patients, conducted by experienced, independent groups with no interest in the outcome
• Monitor patients’ out-of-network care for outliers or changes over time, determine if this is caused by limiting consumer choice
• Simple and safe/confidential patient complaint processes, with meaningful follow up on cases and trends

To address these concerns, payment models have adopted two provisions to protect patients and discourage adverse selection – risk adjustment and quality standards.

All payment models include risk adjustment, which is intended to adjust payments based on patient’s needs (medical, and increasingly social needs). However, risk adjustment is not a mature science and is often gamed by health systems to increase revenue without improving quality or services. Attempts to adjust based on patients’ social needs are very new and aren’t working well so far.

Risks of capitation – Under a capitated model, providers and health systems make more by enrolling more patients. If capacity is not increased, patients will likely have less time with their provider. They also have an incentive to enroll healthier, less difficult patients.

If a practice or health system’s patients cost more than expected, the system may not be able to cover the extra costs. This could put the system at risk for cutting services, layoffs, or eventually bankruptcy. To avoid this, providers may sell to private equity firms with a record of leveraging assets, increasing debt, and eventually closing the practice or hospital.

What is working?

For delivery reform, Patient-Centered Medical Homes (PCMHs) are the only reform with clear evidence of benefits across improving access to care, better quality, both improved patient and provider satisfaction, and controlling costs. PCMHs are primary care practices that provide extended hours, coordinate care for patients, make appointments with specialists, follow up after ED and hospital admissions, enable teams of providers to provide comprehensive care to patients, and offer extra services as needed such as nutrition and behavioral healthcare.

Accountable Care Organizations (ACOs) have a disappointing record toward any reform goals, despite decades of effort and significant investment. ACOs are large, integrated health systems of doctors, hospitals, home health agencies, and other providers. The concept is that providers in a single system will coordinate care and communicate better which will improve quality and reduce fragmentation and duplication of services. ACOs do have to meet some quality standards to receive payments, so they won’t save money by denying necessary care (also called stinting) and avoiding more costly patients (cherry-picking). However, the quality standards are very low and are mainly process measures rather than meaningful improvements in the health of patients. And there is evidence of ACOs cherry-picking more lucrative patients.

In payment reform, there are mixed reviews of various models with no clear success story. Despite significant investments in 54 innovative trials over a decade, “ the vast majority of . . . models have not saved money, with several on pace to lose billions of dollars,” according to CMS’s former head of innovation. A recent systemic review combining the results of 59 studies across payment models in commercial coverage found only about half demonstrated any savings or reductions in utilization. Many studies found no improvement or mixed results.

What are the challenges?

Reform is hard and healthcare providers and administrators are overworked. Workarounds are faster than overhauls. Healthcare is also extremely complex and fragmented. Players have very different perspectives and often can’t see or understand other parts of the system. Pulling one thread can have important unintended consequences that no one could foresee.

Challenges include:

• Groups disadvantaged by reforms can be powerful lobbyists to resist change
• Reform requires significant resources for training, new technology, new staff roles
• Value-based reforms require data collection and analysis to track costs, appropriate care and gaps in care, coordinate across providers – data must be high quality, accurate, and timely to be actionable
• More uncertainty about revenues and costs
• There isn’t enough evidence about which treatments are and aren’t effective at improving health outcomes and saving money
• Increasing consolidation in healthcare markets raise prices and profits, reducing incentives to save money for the system
• Incentives to collaborate and lower costs under value-based purchasing may be less than continuing as usual
• Value-based purchasing is far more complex than traditional fee-for-service
• Providers may resist being held responsible for health outcomes, when so many determinants and patient behaviors are beyond their control

What are the universal healthcare proposals?

There is a consensus that American healthcare is broken. Too many people are left out, it’s too expensive, and we aren’t getting what we pay for. Other developed countries have figured out how to cover everyone at much lower cost. Unfortunately, the barriers to universal healthcare are strong in the US.

The primary universal healthcare proposals at the federal levels are Medicare for All, which would cover everyone, and a public option, which could move the US toward that goal.

Medicare for All builds on the popular Medicare program, Medicare is a single-payer, national coverage program run by the federal government now available to Americans over age 65 and people with disabilities. Medicare for All would expand the program to all Americans. Medicare for All would include coverage for the general medical care and prescriptions included in the current Medicare program. It would also include other essential coverage such as dental, pediatric, maternity, and newborn care, long-term care, vision, and hearing services. It would not include premiums, copayments, coinsurance, or any cost sharing. Drug costs would be capped at $200 per year per American. Proponents expect all providers to participate.

A federal public option would create a national government-run alternative to private insurance for all Americans. People could choose the public option or a private plan, creating more competition in the market. It would include comprehensive essential health services required now of private plans. Proponents expect it would cost less than private plans, because it would not take a profit and it would guarantee competition and consumer choice among insurance plans.

In the absence of federal action on either proposal, Colorado, Nevada and Washington are developing their own state-based public option plans, and other states are considering it. The states’ public option plans are very early in development, but all are expected to compete on their state’s health insurance exchange as another voluntary option for consumers. The increased competition is expected to keep premiums down, as are limits on provider payment rates. All are operating through private insurers but are directed by states, with no profit taking.

There have been several Connecticut public option proposals and attempts. The most recent proposals build on the state employee plan operated by the State Comptroller (OSC). Currently, OSC currently operates the Partnership Plan, allowing municipalities to buy into coverage for their workers linked to the state employee plan. The Partnership Plan has struggled to control costs and compete with private plans available to employers. Public option proposals linked to the state employee plan have not passed. A previous attempt to build a public option on Connecticut’s Medicaid program failed when premiums spiraled out of control.

Trends

• It is likely that payments will continue to move away from fee-for-service and include quality-based incentives. It is not clear if provider financial risk models will grow unless there is evidence of cost control without harming patients.
• Consolidation of providers into large health systems is likely to continue, based on government incentives and market power. Without government action, Connecticut’s two largest health systems, Hartford, and Yale-New Haven health systems, are likely to grow. This will likely increase prices without any improvement in quality or access to care.
• Data and analytic capacity must grow to meet the demands of payers to control costs, and for providers to effectively treat patients and generate savings.

Links

Payment Methods and Benefit Designs: How They Work and How They Work Together to Improve Health Care, Urban Institute,

Alternative Payment Models, Value-Based Payments, and Health Disparities, National Association of Insurance Commissioners, August 2022

Policy Approaches to Reduce What Commercial Insurers Pay for Hospitals’ and Physicians’ Services, Congressional Budget Office, September 2022