The New Health Dialogue

New America's California Health Program recently released the report of The California Task Force on Affordable Care. This group of leaders from the physician, hospital, insurance, business and consumer sectors worked together to develop a plan to save the state $305 billion in health spending over the next decade. This excerpt, the first of a series we will post on the blog, focuses on one strategy from the High Value Top Ten, a comprehensive set of proposals to improve value for the patient and bring down costs for Californians.

1. To promote effective patient care and encourage a culture of wellness, insurers should pay providers for risk-adjusted outcomes rather than for procedures. Public and private payers should use consistent payment policies to provide clear signals to the marketplace.

The claim that bundled payments or ACOs or even fully integrated delivery systems would be effective in controlling costs in California comes with a caveat: such strategies may not reduce spending if the market power of providers is so strong that they can set payment rates. In such cases, any efficiencies providers produce will simply return to the providers rather than result in lower overall spending.

However, within markets where value-conscious consumers are represented by purchasers who have reasonable market leverage, integration of services is a tool that can be used to compete on cost while still preserving quality care. In California, for instance, the state employees’ health insurance exchange, which is administered by CalPERS, has partnered with Blue Shield of California, Catholic Healthcare West, and Hill Physicians Medical Group in a pilot program designed to produce a “virtual integrated delivery system.”

Under this arrangement, the insurer, the hospital system and the independent practice associations are redesigning their systems of care delivery to promote coordination and efficiency. For example, they are eliminating redundancies, such as having the same patient participate in multiple chronic disease management programs. In return for this autonomy, Blue Shield will not be raising premiums for 2010 for more than 40,000 CalPERS members in the pilot program. This means that the insurer and providers have a strong financial motivation to produce efficiencies because they will have to cover any cost increases.

Payment reforms and integration are necessary to improve the quality and efficiency of healthcare in California, but they may not be sufficient to control costs in this market or nationwide. Certainly, they will be most effective in reducing spending when they are deployed in a market in which providers have an incentive to compete on price.

One Task Force member described himself as “an invisible wholesaler” who has no incentive to lower his prices because these prices are not transparent to the consumer. There is currently very little to no incentive in the California market for providers to lower their prices. Bundled payment or ACOs will not change that.  To the extent that they encourage provider consolidation, they may even exacerbate the upward trend in spending if not paired with other market reforms. The plea from the “invisible” provider group was “make our prices have consequences in the market. Let us compete on quality and price.”