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Colorado’s Journey Towards Payment Reform

January is a time for stock-taking, for rear view mirror- and crystal ball-gazing. Often, that turns into a kind of “Look, Ma, no hands!” punditry that’s fun to write but doesn’t really advance the conversation.

So, having now set myself up for anyone to shoot down (my New Year’s gift to readers), I’d like to opine on something CIVHC learned over this last year and consider its implications for our work—and that of our partners—in the coming months.

In mid-2012, CIVHC surveyed the largest commercial insurers in Colorado to assess what proportion of expenditures in the commercial market are fee-for-service (FFS), and what proportion are not tied to volume (e.g., care coordination payments, bundled, global). This exercise is important because one of CIVHC’s Triple Aim metrics is the percentage of statewide health care expenditures associated with outcomes-based models of payment. If we’re going to set a target, we need to know our baseline. While, in time, the Colorado All Payer Claims Database will assist us in making these calculations, it’s not yet comprehensive enough to give us a detailed picture.

The 2012 survey was actually a follow-up to a more informal questionnaire we sent to payers in 2011. For the second iteration, we worked with representatives from the Colorado Association of Health Plans and three major carriers to develop definitions of payment terms on which all agreed. For example, the group decided to include Diagnosis-related Groups (DRG) in our definition of case rates, but separated this category out from both FFS and bundled payments.

We asked carriers to break down their 2011 payments to providers between the following categories, separated by their fully-insured and self-insured lives:

  • Fee-for-service
  • Case rates
  • Care management or coordination payments
  • Performance/incentive payments
  • Bundled payments
  • Capitation/global payments

The results may not be definitive but they illustrate without question that we have to cover a lot of ground to shift the Colorado market toward more outcomes-based payments, as seen in the chart below:

FIVE LARGEST COMMERCIAL PAYERS IN COLORADO

Provider payments for calendar year 2011

Fully-insured lives

Fee for service

Case rates

Care management or coordination

Performance/ incentive payments

Bundled payments

Capitation/ global payments

Number of covered lives in fully insured market, 2011

Weighted average

52%

24%

2%

1%

0%

22%

1,053,340

Self-insured lives

Fee for service

Case rates

Care management or coordination

Performance/ incentive payments

Bundled payments

Capitation/ global payments

Number of covered lives in fully insured market, 2011

Weighted average

80%

19%

0.3%

0.4%

0.3%

0.5%

1,492,454

 

If you remove the one major commercial insurer that does most of its business as an HMO with salaried physicians from this picture, the contrast becomes even more stark: FFS penetration goes up to 75% in the fully-insured, and 80 percent in the self-insured market.

Bear in mind that we should not look only at the FFS and capitation columns of this chart. Since case rates are not an outcomes-based payment model, it’s useful to look at that column in sum with the FFS column—which means that “old school” payment models account for virtually all commercial insurance expenditures in our state.

Remember, CIVHC is not advocating for payment reform for its own sake. The only reason—and it’s a big one—to urge changes to our health care payment system is that old-school methodologies like FFS and case rates reward volume of services delivered, not outcomes or anything resembling value. They don’t support coordination and communication among providers because they’re not readily broken down into the codes on which volume-based payments are based. They perpetuate fragmentation, not integration.

Care coordination payments—lump sum, per member/per month—support that integration by helping providers implement the infrastructure to better manage care to quality targets while coordinating with both colleagues and patients. But they’re only a step on the road to rewarding outcomes. Similarly, pay-for-performance incentive payments reward outcomes, but usually on discrete quality measures, such as managing a diabetic patient’s blood sugars; they don’t necessarily have an explicit connection to care coordination. While both these strategies can minimize costs for a given patient population, neither is powerful enough on its own to truly advance the delivery system coordination (not necessarily consolidation—see my last blog post.

Only prospective payments that give providers incentives to hit both budget targets and quality expectations deliver the direct one-two punch of cost control in the context of quality improvement. So until we can accelerate movement away from FFS in Colorado, we won’t make real progress toward Triple Aim. The data from our survey demonstrate that we have a long way to go.

About the Author: Edie Sonn is CIVHC's Vice President of Strategic Initiatives. Contact her at esonn@civhc.org.

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