Health Plans Shift Toward Paying Doctors for Value Provided

Value-based designs encourage use of higher-quality, lower-cost services

Stephen Miller, CEBS By Stephen Miller, CEBS January 11, 2017
Health Plans Shift Toward Paying Doctors for Value Provided

More U.S. employers are adopting value-based reimbursement and payment arrangements with their health insurers and medical service providers in an effort to achieve better health outcomes for employees at a lower cost.

Late last year, the 21st Annual Best Practices in Health Care Employer Survey by consultancy Willis Towers Watson also found that an increasing number of large employers are embracing plan design features that encourage employees to use higher-quality, more-efficient and lower-cost services, known as value-based plan designs.

'Pay for Performance' Health Care

"As employers grapple with how to lower the cost of health care without lowering quality, they are increasingly looking to pay medical service providers for health outcomes instead of the services they provide," said Trevis Parson, chief actuary, health and benefits, in the consultancy's Philadelphia office.

This involves shifting from a pay-for-service to a pay-for-performance health care delivery model.

"Today, these strategies are more common in geographies where employers have large concentrations of employees or where cost-efficient providers are available and willing to engage in emerging reimbursement models," Parson said. "But this is just the start of a much larger transition—a move from a health care delivery system based on fees for services to a more patient-centric system based on fees for value or outcomes."

The survey results represented 600 large U.S. employers' 2016 health programs and, in some cases, their 2017 and 2018 plans. The respondents employ 12.2 million full-time employees.

A Contrary View

Paying doctors bonuses for better health outcomes makes sense in theory but it doesn't work in practice, argue two academics in a January column posted at Vox. Stephen B. Soumerai, a professor of population medicine and research methods at Harvard Medical School, and Ross Koppel, who teaches research methods and statistics at the University of Pennsylvania, contend that "Health professionals do not respond to economic carrots and sticks like rats in mazes." 

The two professors dispute economists and studies that appear to support pay-for-performance models and caution that adopting this approach "can even lead doctors to shun treating the sickest patients."

Other Value-Based Strategies

The Willis Towers Watson survey findings showed that a growing number of employers also plan to adopt the following value-based plan strategies in the coming years:

  • Establish centers of excellence for specialty services with health plans, separate providers or third-party vendors. Centers of excellence (COEs) are hospitals or clinics deemed to offer high-quality, cost-effective care. Employers and insurers typically offer workers low-cost or free care if they have their surgery performed at a designated COE, as the Lowe's Cos. health plan is doing with the Cleveland Clinic. Currently, 45 percent of large employers are giving employees access to COEs for specialty services such as back, knee, cardiac and infertility issues. This is up from 37 percent of employers that provided access to COEs in 2015. Another 32 percent are planning to do so by 2018.

  • Implement high-performance networks. Twenty percent of employers offer networks of high-quality, cost-effective medical service providers that agree to provide care for a specific population at lower cost. The use of high-performance networks is up from 11 percent in 2015, with another 39 percent potentially adding them over the next three years. Of employers that offer such networks, about half reduce employee cost-sharing for care within the network.

  • Contract directly with service providers to secure improved pricing. While few employers are currently contracting directly with service providers, nearly 16 percent of large employers are considering this approach. Among the service providers they identified as potentials for direct contracting are COEs, accountable care organizations and practices that operate as a patient-centered medical home using a primary care physician's office to coordinate services provided by health care specialists.

[SHRM members-only toolkit: Managing Health Care Costs]

Other plan design features expected to be adopted more widely, the survey showed, include:

  • Reducing point-of-care costs for the use of high-value services. Eleven percent of employers do this, but the number could reach 47 percent by 2018.

  • Increasing point-of-care costs for the use of commonly overused services. Nine percent do so today, but the number could grow to 41 percent by 2018.

  • Requiring employees who undergo certain types of medical procedures to pay a higher cost share if they do not get a second opinion. Four percent currently have this requirement, but the number could reach 31 percent by 2018.

The challenge facing employers is "not only getting employees to use value-based services but also to find health care plans and providers that can deliver them," said Sarah Oliver, Willis Towers Watson's Chicago-based health care delivery leader. "To make progress, employers can use a combination of communication, decision-support tools and incentives to make sure employees understand [value-based services] and encourage their use."

ACA Repeal and Value-Based Designs

"Both the public and private sectors need to step up the move to value-based payments in order to reach a tipping point that will transform health care delivery and remove the perverse financial incentives that drive up the cost of care without improving quality," said Brian Marcotte, president and CEO of the National Business Group on Health in Washington, D.C., which represents employers that sponsor employee health plans.

Repealing the Affordable Care Act (ACA) would "once again change how consumers access health care without reforming how health care is delivered," he noted, and so, in itself, "will not address the escalating cost of coverage or the long-term affordability of health care for Americans."

He encouraged employers to raise questions about whether alternative payment models to the current fee-for-service system will be a priority in proposed ACA replacement legislation.

Efforts to encourage value-based payments among Medicare service providers might also give a boost to reforming payment designs in the group plan market. The Medicare Merit-based Incentive Payment System (MIPS) took effect on Jan 1. 

Related SHRM Articles:

Employers May Adopt ‘Narrow Networks’ of Health Care Providers, SHRM Online Benefits, January 2017

'Concierge Care' Provides a Patient-First Health Benefits Approach, SHRM Online Benefits, October 2016

Related SHRM Resource:

Health Care Delivery Models, SHRM Education Program


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