Surprise: Insurers Save Money When They Pay Doctors Based on Quality

A couple years ago, Blue Cross Blue Shield insurance providers in dozens of states tried something innovative: Paying doctors more if they did a better job. Amazingly, it worked.

In 2013, $65 billion, about one dollar in five of the compensation BCBS companies paid to doctors, was paid out in programs that tied compensation to doctors’ meeting certain quality standards. A smaller version of the program in 2012 resulted in healthier patients and a savings of $500 million for the company — their 2013 results will come out this fall. On the results of their study, they report:

Through these innovative, value based care models, Blue Cross and Blue Shield companies provide patients with access to improved care while also creating value for our members, employers, and taxpayers supporting public healthcare programs . . .  Blue companies around the country report reductions in emergency room visits, hospital admissions and readmissions and other costly medical interventions. At the same time, there have been measurable improvements in prevention, including better diabetes control and higher rates of screenings and immunizations.

The programs cut costs and improved outcomes by incentivizing providers to better share patient information and coordinate care. The model BCBS has implemented on a large scal, known as “value-based care,” is being celebrated as a long-awaited shift from the traditional fee-for-service model of health care, which pays providers based on the amount of procedures and examinations they do without regard to results.

As some experts have already pointed out, in some sense, this new approach doesn’t differ greatly from fee-for-service. Providers are still paid based on the amount of services they deliver, but they get paid more if they provide them in a cost-efficient, quality-producing manner.  

And is it necessary to add a fee-for-better-service element to the system to get quality care? Probably not. Maybe it would be just as easy, and less expensive, to disincentivize bad care instead.

The value-based care model BCBS used, unfortunately, doesn’t take into account the fact that people respond much more effectively to losses than to gains. Doctors and hospitals are still paid standard reimbursement rates if they don’t meet the quality standards, so there are still no real consequences for delivering subpar care. Of course, the political power held by doctors and hospitals makes boosting reimbursements for value much more feasible than cutting them for bad care, but nonetheless, value-based care will come up short of its full potential if it’s just about bonuses.

A trickier question: If doctors and hospitals can deliver better care for less by simply paying with a slightly different system (which is what the providers in the BCBS study did), then why did it take them so long to try it?

The answer isn’t entirely clear, but one reason may be that until recently, there was no reason to. Because many peoples’ health insurance is in large part subsidized by their employer, and because insurers pay the largest part of the cost of most services, consumers tend to care little about the costs (and quality) of their healthcare. If providers charged more, which it’s easy for popular constituencies like hospitals and doctors to do, it wasn’t a problem — insurers raised rates, and customers paid higher premiums. But maybe premiums are now finally getting to be unaffordable, forcing something to change. Check out how steadily they’ve been rising:

BCBS’s value-based-care plans might be a step in the right direction to restrain this growth, but they’re going to be far from sufficient. To really contain costs, insurers will probably have to look at moving away from the fee-for-service payment model and link payments more closely to overall outcomes and goals accomplished. And to some extent, in order to push insurers in this direction (hospitals and doctors are unlikely to love the idea), Americans also need to become active health-care consumers, paying only what’s necessary for the services they need.

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