10 Lessons From a Payment Reform Experimenter-In-Chief

Maybe it’s the bow tie. The faint drawl. The direct, gentle blue gaze. Dr. Stuart Rosenberg naturally inspires trust, which is a good thing at the moment as he ushers the 1800 doctors of the Beth Israel Deaconess Physician Organization into a bold new system for paying for health care. (See today’s report from WBUR’s Martha Bebinger here.)

I went to see Stuart recently because I’d heard that his organization was about to sign a revolutionary new contract with Blue Cross. It would be one of the state’s biggest experiments yet in paying doctors a “global” sum for a patient’s overall care rather than a fee for each procedure.

The new contract rewards doctors for saving money by giving them back a portion of the savings: so long as the quality of the care has been high. This is the direction that health reform has to take, many say. But it means change, major change. “What are you getting into?” I wanted to ask. “How will this work?”

But first things first. Before he could get into local nuts and bolts, Stuart said, it was important to understand the big picture: (distilled and redacted a bit here:)

Big Picture Lessons

Lesson #1: Health costs are pointing us straight into a financial meltdown. Change has to happen.

Health care costs in the United States are exorbitant compared to other developed countries, and the 2 trillion dollars we spend on care takes money away from the things that actually improve health, such as proper nutrition and shelter.

American health care spending was just slightly higher than other countries in 1980. Since then, it has gone through the roof, influenced by political lobbying and the lack of transparency about costs. (Say you’re a Boston patient who needs a head MRI: one hospital would charge $16,000, another $7,000, but those numbers are not public anywhere.)

That lack of information leads to a distorted market. The free market is the best way to exchange money for goods and services: except when it doesn’t work.

Say you’re a Boston patient who needs a head MRI: one hospital would charge $16,000, another $7,000, but those numbers are not public anywhere.

(He showed me a terrifying chart of the aging population and rising health care costs.)

There’s no way to pay for this. It’s just over. I can remember in the 1980’s, when we were at $253 billion a year in health care costs, and people said, “In the future, we’ll spend a half trillion.” Well, in ten years it was $700 billion. And I remember when they said it could be a trillion. Now we’ve gone from 1.3 to 2.4 trillion in nine years, and
when the Medicare wave hits, nine years from now, in 2019, if things stay the same: no increased insurance, just those people get older: we’ll be spending 4.4 trillion and 20% of GDP on health care.

Lesson #2: The health care market is distorted toward making enormous profits in certain areas, not all of which are really geared to improving the public’s health status.

Example: Open-heart surgery brings in huge profit margins because it has lobbying groups behind it. If you get pneumonia, there’s no pneumonia lobby, so the health care providers will lose money every time, even though you save the patient’s life. Every hospital out there is trying to get referrals for open-heart surgery. So it’s not surprising the US does more open-heart surgeries by a factor of two than any other country.

Lesson #3: Federal and state health care reforms thus far only increase costs.

Massachusetts reform increased access to health care. If you have a system where goods and services were rationed on the basis of price so only the relatively wealthy could have them, and now you say everyone can have them, will you need more? Of course you’ll need more. So cost will go up: that’s what happened in Massachusetts.

Those of us in the business said, “This is going to cost way more than they’re saying.” Not because open access was a bad idea. The reason costs went up is because the people who had nothing are now getting what many of us always had: but what you’ve always had is of very poor value. They did the same thing at the federal level and cost will go through the roof.

The expense problem is such that we were going off the cliff in about five years anyway, reform or not. It really is true that we cannot afford to do everything in the federal health care reform and not touch care as usual. The answer is that we have to fix the underlying problem, which is the poor value of health care in the U. S.

Lessons from the new contract

And now, (drum-roll) to the new contract between the Beth Israel Deaconess Physician Organization and Blue Cross Blue Shield, affecting some 75,000 HMO patients:

Lesson #4: It’s not easy to negotiate payment reform like this, but there comes a moment…


The Beth Israel Deaconess Physician Organization doctors are the first major Harvard academic group to sign such a contract. Others are trying similar set-ups.

At a recent conference in Charleston, there were representatives from universities from all over the country and to a person, they said nobody else in a big academic center is contemplating doing this. Boston is unique. All the academic centers here are probably contemplating this.

The Beth Israel Deaconess Physician Organization was in lengthy negotiations about its payment rates with Blue Cross Blue Shield. Then the economy fell off a cliff. The easiest thing to do would have been to keep the status quo.

But it was clear this was not a year that was business as usual. This was a watershed moment. And the opportunity was: Why don’t we be a leader? We know it’s the right thing to do. It’s going to be extremely hard, difficult, unpleasant, getting people out of their comfort zone. You’ll have to take the show on the road and convince lots and lots of people to do something they don’t want to do. And I said, ‘Yeah, that sounds like a good idea.’

The final thing that pushed me over: I remember waking up one morning and the news was that the mayors of 20 cities in Massachusetts were petitioning to have collective bargaining for health care benefits taken off the table. They were saying, ‘We just can’t afford this anymore.’ Things are different, I realized. People are realizing they’re bankrupt.

Also, the attorney general did a tremendous service by beginning the push for transparency about cost and quality.

After two years and hundreds of hours of negotiation over issues like inflation, and input from two sets of national consultants, now there’s a deal.

Lesson #5: How a contract like this works: You can only win by doing the right thing

Take this group of about 75,000 patients. It’s amazing how stable on an actuarial basis the group is year after year, even down to our being able to predict how many babies will be born.

At the purely financial level you calculate the “per member per month” cost: let’s say it’s $500.

Then you take an inflation factor: say that in general, the network’s costs went up 6% that year.

So if the Beth Israel doctors have been efficient and their costs have gone up only 4%, there’s a margin. The providers would split that surplus with Blue Cross.

Same thing if their costs have gone up 8%, and there’s a loss. Blue Cross splits it with the doctors.

It’s amazing how stable on an actuarial basis the group is year after year, even down to our being able to predict how many babies will be born.
But it’s not quite that simple. You must link financial responsibility to hitting targets in quality and being sure that patients get the care they need. Quality includes things like keeping hypertensives’ blood pressure under control, making sure women get mammograms, and patient satisfaction.

Quality scores can range between 1 and 5. If the doctors get a 5, they get to keep a large part of the surplus. But if they save a ton of money but blow it on quality, they get very little of the surplus.

You can only win by doing the right thing: that is, improving the quality and value of health care at the patient level.

Lesson # 6: For example, diabetics: It’s not less care, it has to be more care

Say you’re a new diabetic and you’re my patient and I have you come back every week or two to go over your blood sugar. That’s good – but you work and you want to mail in your data. But I as a doctor can only get paid if you come in.

In fact, what diabetics need is not always MD-level care; they need Advance Practice providers who are paying meticulous attention to detail, who call the patients. They also can use electronic devices that measure your blood sugar. They don’t really need to come see you. What you really want is for their hemoglobin A1Cs to be measured and be less than 7.

In our set-up, you’re not going to have so many office visits because we’re going to have a nurse who’s running a protocol. You, the doctor, set the parameters: ‘I want Mrs. Jones’s sugar to be between 80 and 120.’ And the nurse comes in and sees a list of 15 or 20 people whose blood sugars are 250 and they call those 15 or 20 people to check on them.

And then there will be some diabetics with complex issues, and the nurse will say, ‘I’m making you an appointment to see the doctor.’ It will be a 30-minute appointment because now the doctor is seeing patients who need time, instead of rapid-fire 15- minute visits.

It’s not less care, it has to be more care. The way to advertise this is that if you’re in a certain category, we have a nurse practitioner who’s monitoring your fill-in-the-blank: diabetes, asthma: using a computer system. We purchase in-home monitoring devices and give them to you. People say ‘This feels like more, my fee for service doctor isn’t giving me anything.’

Lesson #7: The big savings are on chronic disease management and readmission to the hospital

On Jan. 1, when the contract comes into force, nothing will initially look different: doctors will see their HMO patients, drop the bill to Blue Cross and get a check back for exactly the same fee. That’s not where the savings are.

The big areas of saving are chronic disease management and things like needless readmissions to the hospital because a handoff wasn’t well coordinated. You didn’t follow it all the way through so the patient got readmitted to the hospital and that cost $20,000. It’s not just the price, it’s the frequency of all the services: how many MRIs, how many emergency visits. Part of that is lack of coordination.

Lesson #8: Primary care gets extra respect

Overall, the surplus all goes to the primary care enterprise, rather than specialists.

The reason we have to shift it to primary care is that it’s been underinvested in for decades.

Some of the surplus will go directly for salary, some will be invested in the primary care enterprise: more nurses, more support for primary care because that’s where we’ll make a big difference.

Lesson #9: Specialists may dwindle

One of the more difficult conversations: If we had been doing too many MRIs, and now we do the right number of MRIs, there must be fewer radiologists, right? And the answer is yes. There will be fewer radiologists, fewer gastroenterologists, but the best will be busy, maybe busier. That’s just the way it is.

Lesson #10: Seeking “the right care, at the right time, at the right place.”

In the end, we will finally be focused on giving patients what they have always wanted, better care that is more affordable. This is about having a way to provide more appropriate, better coordinated, more personalized, and more effective care. And, frankly, it is the only way that we can hope to extend quality health care services to all the people. The right care, at the right time, at the right place.

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  • Einboston

    We can’t keep up with a nutritional culture that promotes disease through the comsumption of animal products. It’s a giant Ponzi scheme and will eventually collapse. Take personal responsiblilty for the food that you feed yourself and your family; change your eating habits. Read about it and spread the word.

  • James John

    Health care reform, or any other attempts to cut medical costs or improve the system, can go only so far, if health insurance companies don’t pay their bills for the medical care they are supposed to insure. Physicians are put in the position of having to increase fees or reduce care, if many of their bills go unpaid by carriers, forcing doctors to find the money or savings elsewhere. That’s why offshore medical billing services can help, not hurt, the U.S. economy and the U.S. health care system. Offshore collection services in India, for example, efficiently take on the carriers and make them pay the legitimate claims that they so often try to avoid paying. That’s health care reform you can believe in!

    James P. John
    Medical Billing Manager
    http://www.sddglobal.com/medical_billing.htm

  • Mark Greenwood

    I didn’t ready much of the article so what I have to say probably doesn’t have anything to do with it. I believe eating nutritiously by eating more nut, fruits, and dried fruit as snacks inbetween meals improves peoples health. Nuts such as almonds, walnuts and cashews are good for your mental faculties and fruits if I remember correctly supply glucose to the brain. I think if there is a way to get members of a health plan to eat these kinds of foods it will improve member’s health and reduce visits to the dr which would reduce medical costs. Maybe have drs both allopathic and holistic both write good articles on nutrition. You could also add exercise but I would concentrate on nutrition.
    Mark skiesea654

  • Dr. White

    Time will tell if this approach has merit. Many think these contracts will further consolidate the market in Mass. and drive costs up further. The AQC is short on quality measures and long on financial incentives to reduce care. To avoid the rationing associated with this type of capitation many more quality measures must be put in place and BCBS must monitor these measures closely.

  • Paul Levy

    An superb presentation by Stuart. A little more commentary here from the hospital’s point of view: http://runningahospital.blogspot.com/2010/12/bid-doctors-and-bcbs-go-global.html

  • Terence Coughlin

    This is transformational stuff. Kudos to all sides for the courage and will to see this through. The nation will be watching.