Tuesday, January 18, 2011

HPHC goes its way, thoughtfully

Lots of people are thinking about the form of payments between insurance companies and providers for health care services, but it is also important to think about how each such approach would be marketed as an insurance product to the population.

The payment model that gets the most attention is capitated, or global payments, combined with accountable care organizations. In this environment, an average annual budget is established for each person served by an integrated health care delivery system (ACO), and that budget is shared among the providers according to some mutually agreed upon arrangement.

But the insurance product that would accompany this kind of payment scheme is often left without much of a description. As I have talked with insurance executives, they often fail to explain how they would offer consumers a desirable choice for a product based on this payment plan. Instead the main focus seems to be on shifting risk from the insurer to the providers, reducing the amount of unnecessary expenses, and sharing the benefits of those changes between the insurance company and the providers. Over time, the theory goes, the cost curve is slowed and premiums go up less quickly. But, it remains unclear what the role is for consumer in this scheme.

Eric Schultz, the CEO of Harvard Pilgrim Health Care, is offering a different view. I heard him give a talk the other day and have read some of his company's materials. I will try to offer a fair representation here.

Eric recognizes that changes in the payment and insurance system will have to evolve over an extended period. Noting that the current system has been in place for decades, he views that time frame as being well over five years, and more like ten. He seems to be advocating a step-wise plan, one that allows time for consumer and provider education and one that envisions mid-course corrections when the inevitable unintended consequences emerge. He is keen to avoid the kind of consumer and physician misunderstanding and resentment that characterized previous adventures in capitation.

His approach is exemplified in two new product lines being offered by HPHC. The first is called Focus NetworkSM and is described here. It is being tried out first in Central Massachusetts (see map). In essence, this is a plan that offers consumers less choice, relying on service from lower cost providers, and it enables HPHC to offer a premium that is 10 to 14% below the standard product.

How is it sold? While the Focus Network offers less choice, the consumer gets a clear choice between it and the standard plan. In a side-by-side comparison, a subscriber can see the difference clearly. Very importantly, HPHC advises its corporate customers to offer employees a defined dollar contribution towards their health care benefit. Doing it this way, rather than offering a defined percentage, ensures that the price differential between the two plans is not watered down in the eyes of the subscribers.

The second product line is a tiered network, where providers are grouped according to their cost. Well, not cost -- price -- i.e., the negotiated rates between HPHC and the providers. Physician groups (not individual doctors) are to be put in a tier based on the total medical expense of their patients (including hospitalization costs.) Hospitals will be specifically tiered based on their own expenses. Then, consumers get to choose their site of service, knowing that their personal co-pays and deductibles rise or fall depending on the tier chosen.

Under both schemes, the fee-for-service payment regime remains in effect, with a healthy dose of pay-for-performance incentives. In other words, global payments are not viewed as being necessary to change practice patterns or to influence consumer choice.

As I see it, Schultz is willing to bet that his approach will bend the cost curve with potentially less public outcry and backlash than might occur with others. I also am guessing that he wants to maintain HPHC's reputation among consumers as an excellent HMO, something that is important as employers choose between HPHC and other insurers. He is doing so in a way that engages and educates consumers -- and offers elements of choice -- rather than imposing a new system that will appear to some as taking it away.


Edward said...

From Facebook:

Important thoughts about the issue of incentives and private decision-making in health care cost control.

Eric Schultz said...

Thanks Paul for describing these two approaches in such a clear way. Below are four points that I often mention around managing medical cost trend and I think they line up well with what you described in your blog:

1. The health care system needs major repairs and requires urgent action. Which is why we at HPHC have been making major changes in our provider, network and benefit plan design strategies.

2. BUT, an urgent response should not mean pushing ONE great idea across ALL providers. Health care is local, and this means that a few different forms of provider payments will be needed to bring about the type of health care reform we all want. Rule #1: "One size doesn't fit all".

3. Engage provider - will the form of payment drive better outcomes and lower cost trends?

4. Engage consumer - will the consumer have incentives that cause them to use the more cost effective and high quality providers? We have to find better ways to reward providers that are providing excellent care in the most cost effective fashion...and this is not happening well-enough yet. Engaging the power of the consumer is an effective driver.

5. Keep the patient-physician relationship "front & center" and do whatever we can to shift funding into the role of the Primary Care Physician.

Anonymous said...

I like Eric's 4 (5) points, and I would rank them with 4 first, followed by 3 and 5 in that order. I like to call them patients, but somehow their engagement absolutely has to happen. I think employers can help here by mandating such engagement by their employees.

As for shifting to primary care, I agree that it needs to happen, but I caution that today's primary care providers are not trained for the new diagnostic and treatment responsibilities expected of them - therefore some flexibility by the insurance companies while the necessary knowledge is obtained may be prudent for patient care.

nonlocal MD

Engineer on Medicare said...

The real issue is whether the patients will know, and have available to them within the programs, the hospitals and technologies that will have the best outcomes. For example:
1. Will I be able to choose the hospital that experiences 95% chance to live the next year after a valve replacement, or will my plan cover only the hospital that shows 90% survival rate? Apply the same standard to other procedures such as kidney transplants or cancer treatments.

2. Will the standard plans cover the best available treatment? For example, would they cover the Dick Cheney versions of treatment such as the pacemaker/defib, and eventually a heart pump? Would those with the standard plan be equally eligible for the protocols that have demonstrated the highest survival rates for their particular condition?

Another issue is whether the primary and specialist physicians would be incentivized to prescribe treatments and referrals that would control costs, which may not always be in the best interests of the patient.

Anonymous said...

76: I was hoping you would comment. Yes, that is my opinion, without intending insult. I fear you all may be expected to treat orthopedic conditions, for example, that may or may not be appropriate (I am not an orthopedist). What do you think?


76 Degrees in San Diego said...

Physicians are credentialed and recredentialed by provider care organizations, hospitals, and medical malpractice carriers on the basis of formal training and documentation of current competence for their scope of practice. The shared incentives for the above three is to do things right the first time.