The American Journal of Managed Care
April 2013
Volume 19
Issue 4

Health Plan Innovations in Delivery System Reforms


Health plans are fundamentally transforming the delivery of healthcare for patients by reforming payment models, coordinating care, and partnering with providers.

Making the healthcare system more affordable will determine whether employers can continue to provide coverage, whether individuals can purchase it, and whether important public programs can be sustained. Health plans are playing a vital role in reducing the cost of care and improving value by changing how they pay providers. At the same time, they are creating new benefit designs to encourage patients to choose high-performing clinicians and hospitals and take advantage of care coordination and case management for chronic conditions. This article describes health plans’ innovations, while also teeing up a policy agenda that would advance these changes.

Health Plan Innovations in Delivery System Reform

Health plans are redesigning payment mechanisms to move away from the practice of rewarding volume through fee-for-service payments and toward encouraging better outcomes and improved efficiency through accountable care organizations (ACOs), patient-centered medical homes, and bundled payments. In moving away from retroactive payment to a prospective design, these new models are built on accountability, shared risk, and population-based care.

At America’s Health Insurance Plans (AHIP), our experts have been mapping these developments and will be releasing a new state-by-state compendium of activities around the country. In addition, over the past 18 months, we have convened 3 invitational summits bringing together health plans and their provider partners to discuss how they have restructured their payment contracts, outline key features of their programs, and present results.

What we are not seeing are cookie-cutter, 1-size-fits-all approaches. Rather, payment redesign is being structured and calibrated across the country to take account of providers’ readiness to accept financial risk. Unlike previous attempts at payment redesign, these current efforts are aimed at tackling both primary and specialty care. While they are at various stages of development and implementation, 2 distinct features are fundamental to the new models being launched across the country: there is strong evidence of collaboration between health plans and their provider partners and both quality performance and cost reduction goals are being negotiated. This allows health plans to engage in meaningful population-based measurement and providers to have confidence that performance metrics are transparent and fair.

Another major change is that health plans are redesigning benefit structures at the same time they are changing payment mechanisms. These changes are designed to work synergistically to reward providers for achieving results, while also rewarding patients for making choices to use higher-performing hospitals and physicians and regularly obtaining services that are crucial for chronic care management. Strategies advancing either payment restructuring or benefit design cannot work optimally if they are working alone. To maximize results, they need to be aligned and coordinated, and health plans are in a unique position to make that happen.

Getting Under the Hood

In building new payment models, health plans are offering their provider partners more data, as well as decision-support tools. These data help physicians recognize gaps in care, such as which patients need comprehensive case management, which patients are most at risk of developing serious conditions, and which are in need of immunizations and preventive care.

From our research, we have noted several characteristics that are present in today’s plan-provider collaborative models that are yielding promising results. Buy-in for these new arrangements must start with leadership. Clinical integration, a culture of initiating change, a robust health information technology (IT) infrastructure, and acceptance of new payment arrangements are all key criteria.1 In addition, a relationship of 3 or more years is critical to achieving efficiencies among all partners.

Preliminary data suggest that new private-sector ACO models are off to a strong start, with initial quality improvements of approximately 10%; a 15% decrease in readmissions and total inpatient days; and an initial annual savings of $336 per patient.2

Plans also are moving to budget-based methodologies in their provider contracts.3,4 This approach combines a fixed per-patient payment (adjusted annually for health status and inflation) with substantial performance incentive payments tied to nationally accepted measures of quality, effectiveness, and patient experience. Other developments in the market today involve the creation and implementation of non-financial infrastructure and support systems. Plans have introduced

an array of programs designed to support physicians with patient-centered medical homes, providing access to skilled care coordinators, improved data sharing, and reporting among participating practices.5,6

As noted above, patient engagement and consumer transparency tools are important complements to enhanced provider partnerships. Health plans are working closely with patients on an array of programs that help increase medication compliance, promote rewards for seeking health appraisals and meeting personal goals, and provide low-cost or no-cost coverage for certain preventive and other high-value benefits. Health plans also are making information about premiums, cost-sharing, and deductibles available in readily understood, web-based formats.

Innovations in value-based insurance design (VBID) have been developed to help improve health—encouraging individuals who are healthy to stay healthy, and encouraging individuals with certain risk factors, and/or those with chronic conditions, to seek treatment. A key component of these strategies is a health-risk assessment (HRA) tool, along with administrative data to help plans identify individuals at risk and provide customized action plans. Indeed, data from a number of sources show that these programs are helping to increase drug-therapy compliance among chronically ill patients7 and producing non-medical benefits, including increased productivity among the working-age population, and reduced absenteeism.8 Another important step has been the development of culturally competent care plans that bring together the patient, the patient’s family and/or caregivers, and a team of providers and experts to coordinate medical care and necessary home and community-based services.9,10

Role of Public Policy

As significant changes are taking place in the market, a key question going forward is how best to structure a policy agenda that recognizes and encourages these changes. To accomplish this, the public policy dialogue needs to be broadened. Too often, the policy debate has confused cost containment with cost shifting. This has happened because many of the policy discussions do not look at total cost but rather, how to reduce costs in a particular program—such as Medicare or Medicaid. Instead, we need a coordinated strategy to address the cost challenge systemwide.

A second issue that has held back progress is that much of the focus has been on the wrong end of the problem, namely premium increases, rather than the cost drivers that have been pushing premiums higher. Armed with path-breaking work on the role of unit-cost increases, more policy leaders are now discussing what is driving the cost of care higher. Highlighting the right problem will raise the bar on the development of workable action plans.

With healthcare costs consuming too much of family income, employer payrolls, and public budgets, it is critical that the country begin to forge a public policy agenda that can support the market-based changes occurring across the country.

Give consumers and purchasers transparency on what they are being charged. There is widespread agreement that provider consolidation, particularly in hospital markets, has been a significant driver of costs. This market power has been exercised through hospital mergers and the creation of multihospital systems. While the Federal Trade Commission and States Attorneys General are taking important steps to enhance enforcement, additional strategies should be considered. One potential solution is to create transparency on how hospital charges to employers and other commercial payers compare with those for public purchasers, such as Medicare.

This ratio of commercial-to-Medicare costs could then be publicly disclosed by each facility as its “cost-shifting ratio.” This information would help consumers and purchasers understand how much more is being charged to commercial payers and how these ratios compare across facilities. This public disclosure would shine a spotlight on the wide variations in cost-shifting ratios, help researchers to determine the impact of consolidation on charges to non-governmental payers, and begin an important conversation about whether commercial charges that are over a certain percentage of Medicare reimbursement make sense. In particular, it would draw attention to facilities where the cost-shifting ratio is well over 200% or 300%.

Align public and private quality measures. With plansand providers subject to hundreds of quality measures from both private and public accrediting bodies, the lack of uniformity is a serious impediment to quality improvement. It is critical that public and private payers reach consensus with the provider community on a core set of measures that would fully align public- and private-sector efforts. Several important efforts always are under way to achieve alignment of performance measures, both within the public sector through the Measure Applications Partnership, and between the public and private sectors. All stakeholders should agree to put this effort on a fast track to help improve quality goals and reduce duplication and inefficiency. When adopted, the core set of measures should be regularly reevaluated by the relevant stakeholders and revised based on state-of-the-art research and lessons learned as the measures are applied. As legislation cannot keep pace with evolving practices and standards, it is important that this goal be accomplished outside of the political arena.

Promote administrative simplification and meaningful data exchange. Health IT has the potential to help improve outcomes, promote efficiency, and reduce administrative costs throughout the system. Incentives to promote the meaningful use of electronic health records and decision-support tools to improve the quality of care delivered are only a starting point. Through meaningful use, providers should be encouraged to adopt and use an open health IT platform that communicates electronically with other unaffiliated providers. In addition, we need to achieve standardized information exchange between providers and health plans and automate quality reporting using clinical data. Current federal law requires health plans to adopt standardized practices for claims administration; however, there are no corresponding requirements on providers to conduct business with plans electronically. For the full promise of administrative simplification to be fulfilled, providers should be encouraged to adopt and use health IT to communicate electronically with health plans. Establishing requirements that apply only to health plans without similar requirements for providers is like building only half a bridge. Not only will it not achieve the full cost savings and efficiencies that administrative simplification can provide, but it requires billions of dollars to be spent on competencies that will not be operationalized throughout the system.

Invest in research on what works. Experts agree that one of the chief barriers to improved patient outcomes is variation in medical practice. Unfortunately, an information vacuum exists with respect to what drugs or devices work best for a particular patient, how these therapies perform when assessed against one another, and what the most cost-effective treatments are. Given the size of the nation’s investment in healthcare, as well as the impact of not knowing these answers, significant attention should be paid to what needs to be done to address this problem and improve the efficiency, effectiveness, and safety of various treatment options.

Promote scope-of-practice laws to allow doctors and other clinicians to practice to the “top of their license.” With consensus growing that coordinated care is crucial for those with chronic illnesses, the demand for physicians and other clinicians is expected to be high. Accordingly, we need to reevaluate old-fashioned scope-of-practice limitations and establish rules better suited to 21st century needs. Encouraging greater use of nurse practitioners and physicians’ assistants will not only improve case management, but provide physicians the support that they need to provide care commensurate with their training and expertise.

Encourage states to play a greater role in expanding private-public efforts to bring total costs under control. Over the next 10 years, the Congressional Budget Office projects that the country will spend $17 trillion on Medicare, Medicaid, employer-provided healthcare benefits, and new tax subsidies provided to individuals under the provisions of the Affordable Care Act. If individual states were encouraged to coordinate efforts within their borders to produce “savings” in these projected costs, then there could be resources available to reward them. Each market is unique and creating a “gain-sharing” program to incentivize states to play a leading coordinating role would encourage a focus on public-private partnerships to address the cost of care, work force needs, public health challenges, prevention, and community and home-based care options. Such an effort could produce better alignment of private and public sector strategies to achieve results and also produce savings for the federal government, employers, and consumers.

Author Affiliation: From America’s Health Insurance Plans, Washington, DC.

Funding Source: None.

Author Disclosure: The author reports no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design; acquisition of data; analysis and interpretation of data; drafting of the manuscript; and critical revision of the manuscript for important intellectual content.

Address correspondence to: Karen Ignagni, President and CEO, America’s Health Insurance Plans, 601 Pennsylvania Ave, NW South Building, Ste 500, Washington, DC 20004. E-mail: Ellis P, Sandy LG, Larson AJ, Stevens SL. Wide variation in episode costs within a commercially insured population highlights potential to improve the efficiency of care. Health Aff (Millwood). 2012;31(9): 2084-2093.

2. Higgins A, Stewart K, Dawson K, Bocchino C. Early lessons from accountable care models in the private sector: partnerships between health plans and providers. Health Aff (Millwood). 2011;30(9):1718-1727.

3. Song Z, Safran DG, Landon BE, et al. The ‘Alternative Quality Contract,’ based on a global budget, lowered medical spending and improved quality. Health Aff (Millwood). 2012;31(8):1885-1894.

4. Markovich P. A global budget pilot project among provider partners and Blue Shield of California led to savings in first two years. Health Aff (Millwood). 2012;31(9):1969-1976.

5. Patel UB, Rathjen C, Rubin E. Horizon’s patient-centered medical home program shows practices need much more than payment changes to transform. Health Aff (Millwood). 2012;31(9):2018-2027.

6. Raskas RS, Latts LM, Hummel JR, Wenners D, Levine H, Nussbaum SR. Early results show WellPoint’s patient-centered medical home pilots have met some goals for costs, utilization, and quality. Health Aff (Millwood). 2012;31(9):2002-2009.

7. Chernew ME, Juster IA, Shah M, et al. Evidence that value-based insurance can be effective. Health Aff (Millwood). 2010;29(3):530-536.

8. Fendrick AM. Value-based Insurance Design Landscape Digest. National Pharmaceutical Council. July 2009. vbidcenter/registry/pdfs/NPC_VBIDreport_7-22-09.pdf.

9. Gazmararian J, Carreón R, Olson N, Lardy B. Exploring health plan perspectives in collecting and using data on race, ethnicity, and language. Am J Manag Care. 2012;18(7):e254-e261.

10. Claffey TF, Agostini JV, Collet EN, Reisman L, Krakauer R. Payerprovider collaboration in accountable care reduced use and improved quality in Maine Medicare Advantage plan. Health Aff (Millwood). 2012;31(9):2074-2083.

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