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Two studies released recently paint starkly different pictures regarding the ability of the nation’s health care system to reduce costs by coordinating care and paying health care providers on the basis of quality and efficiency. 

The studies are interesting because the federal health reform law pretty much puts all its cost-containment eggs in one basket, hoping to demonstrate that  changing the way we pay for health care can drive large-scale savings and, in turn, hold down the cost of health insurance. 

The reform law is playing several cards in this important bet, including “accountable care organizations,” designed to enhance the quality of care in exchange for enhanced payments for meeting specific performance standards, and various initiatives to facilitate coordinated care in order to realize efficiencies and reap concomitant cost savings. 

Congressional Budget Office Study 

A recent study by the nonpartisan Congressional Budget Office (CBO) provides discouraging news about these efforts, but also offers reason for hope. 

Over the past 20 years, Medicare conducted 10 major demonstration projects looking to improve health care quality and efficiency. One set of projects involved disease management and care coordination aimed at improving the quality of care for chronic illnesses, particularly where the care was expected to be costly. 

The CBO’s analysis: “[E]valuations show that most programs have not reduced Medicare spending. Programs in which care managers had substantial direct interaction with physicians, and significant in-person interaction with patients, were more likely to reduce Medicare spending than other programs, but on average even those programs did not achieve enough savings to offset their fees.” 

The other set of projects hoped to achieve savings by rewarding health care providers for meeting certain quality standards, rather than paying them simply on the basis of the traditional “fee for service” model.  The CBO reports that three of the four projects involved in the effort “achieved little or no savings for Medicare.” 

But not all the news is bad. The three failing projects paid providers standard Medicare reimbursements for their care, and then used bonus payments as incentives to improve quality. The results suggest providers were willing to do “business as usual” as long as they were reaping standard payments. 

In the fourth project Medicare made bundled payments that covered all hospital and physician services for heart bypass surgeries. Spending for these services declined about 10 percent. So the lesson may be: Paying for performance can achieve cost savings without sacrificing care quality, but the incentive must be structured appropriately.

The CBO’s conclusion? “[S]ubstantial changes to payment and delivery systems will probably be necessary for programs involving disease management and care coordination or value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients.”

See the CBO report here.

The Good News: Premier Health Care Study

The Premier health care alliance recently released results of an analysis of care quality improvements and cost savings by 157 hospitals that adopted Premier’s enhanced performance standards. Premier claims the hospitals saved almost 25,000 lives and $4.5 billion. 

The participating hospitals—spread across 31 states—agreed to share data and adopt a common set of quality performance measures. The goals were to: reduce mortality by at least 18 percent; reduce the average cost of care to less than $5,720 per discharge; provide evidence-based care for heart attack, heart failure, pneumonia and surgical care at least 84 percent of the time; improve the patient’s hospital experience; and eliminate harmful mistakes. 

See Premier’s announcement here.

Winners and Losers

So what are we, as health care consumers, taxpayers, and employees and employers buying insurance, to make of all this?

Something this complicated defies easy answers. But here’s one that strikes us as logical: When health care providers become better and more efficient the patient wins, but that win doesn’t necessarily translate into cost savings.

For example, the hospital that responds most effectively to incentive-based payment models will provide better care, make fewer mistakes, and see fewer re-admissions, resulting in smaller insurance payments on behalf of its individual patients.

But if the hospital frees up patient space faster, doesn’t it lose revenue? We can pay the hospital a reward for providing less but higher quality care, but then where do the savings come from?

And the hospital won’t want to leave beds empty. It will want to fill those beds by seeing more patients. Where will they come from? Presumably, those patients will be individuals who come to the high performing hospital instead of a lower performing hospital. The resulting competition may reward the high performers with more customers and challenge the low performers to up their games. But will health care payers (like Medicare and health insurance companies) truly spend less? Or will they instead simply get more–get a bigger bang–for the same bucks? That wouldn’t be bad, but what happens to the savings?

That’s the rub. The savings must come from somewhere. Health reform puts much emphasis on prevention and coordinated care through concepts like “medical homes,” which orchestrate patient care with an eye toward keeping individuals healthier, rather than treating their sicknesses.

But, like the higher-functioning hospitals, if primary care doctors are rendering treatment to fewer patients because the patients are healthier, how do the doctors keep their waiting rooms full, in order to pay the bills? The answer, of course, is that we have to pay doctors for keeping patients healthy. But if we do that—if we pay doctors to supply care, and pay them to not supply care—how do we achieve reductions in spending meaningful enough to drive down the cost of insurance? At the end of the day, someone has to make less.  But how?

If we were smart enough to solve that riddle we wouldn’t be spending Friday afternoons writing blog articles.

The author thanks Ian Chuang, M.D., one of Lockton Benefit Group’s Medical Directors, for his insight with respect to the challenges posed by health care payment reform.