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Health care challenge: Value vs. volume

ALBUQUERQUE, N.M. — The most visible and controversial parts of Obamacare – the insurance exchanges, Medicaid expansion, requirements that individuals obtain coverage – are just pieces of the law and, in the long run, may not even be the most important pieces.

The way the nation pays for health care and the kind of health care the nation will pay for are undergoing a revolution, dictated by financial pressures, common sense and changes required by Obamacare (officially known as the Affordable Care Act).

“If you change the payment system, the delivery system will follow,” said Rich Umbdenstock, president of the American Hospital Association, who was in Albuquerque recently to address the New Mexico Hospital Association.

AHA board Chairman and Presbyterian Healthcare Services CEO Jim Hinton, who also addressed the NMHA, said there is a volume payment model of health care and a value payment model. Hospitals today, he said, are caught in the gap between the two approaches, still dealing with the one while trying to figure out how to implement the other.

The payment system that has dominated American health care for generations is a volume model. You pay doctors, hospitals and other providers of care for everything that they do. It doesn’t take a doctorate in economics to grasp that if you pay a system for anything that it does, the system has an incentive to do as much as possible.

And it does. Hinton provides one of my favorite statistics: Almost half of all tests ordered by the system are either unnecessary or of dubious clinical value.

The value payment model, as you might guess, is designed to reward providers for doing smart things, delivering high-quality care at lower cost, and keeping patients healthier.

You may have heard the term “alignment of interests” in the context of health care. Insurance companies are finding that employers, who still help pay for most of the health insurance covering working-age people and their families, can’t keep paying double-digit increases in premiums. Employees are finding it hard to afford their share of the coverage. But if the payment system keeps giving providers incentives to do more, regardless of the value, the providers’ interests do not align with those of workers, employers and insurers.

The challenge is to get everyone beating the value drum while still providing adequate and fair compensation to the people who deliver the care, because it is in no one’s interest to drive health care providers out of business.

Albuquerque last week got just a glimpse of the difficulty providers face when ABQ Health Partners announced it would lay off a few dozen people, including doctors, who, for reasons the practice would not explain, somehow didn’t mesh with a move toward value models.

The ACA is trying to accelerate the revolution with carrots and sticks. The act both cuts some payments to insurers that sell Medicare Advantage coverage and pays them bonuses for achieving quality goals. Medicare penalizes hospitals for readmitting patients for conditions they should have fixed in the first place. The act also rewards them for quality improvement. It is funding experiments in payment reform that could help align interests.

One way to align interests is get providers to share financial risks with insurers. An insurer might ask a provider to accept a flat rate per month for treating a patient. If the patient’s health improves, or if the insurer’s customer never seeks care, the provider comes out ahead. If the practice can’t properly manage the patient’s care, or if some patients prove to be much sicker than average, the practice loses.

Not all providers have the financial resources, the staff, the infrastructure, the databases or even inclination to share and manage risk. Among other things, it takes tremendous knowledge of a practice’s patient population even to grasp what the risks are an insurer might ask the practice to accept. Insurers are starting programs to share their own knowledge of a practice’s patient population, via claims histories, but it doesn’t take too many unexpected cases – the baby delivery that goes wrong, the horrific accident, the undiagnosable disease – to render the best financial guess moot. For those reasons, only the larger practices seem to be willing to consider risk-sharing.

There may be regulatory issues as well. States regulate insurance companies that are in the business of taking on the risks of paying for health care. They carry financial reserves to pay unexpected expenses. They have actuarial expertise that allow them to anticipate what costs are likely to be.

A doctor’s office is not in the insurance business, it does not carry reserves or employ actuaries, and it is not subject to insurance regulators’ oversight. A regulatory concern is that by putting the provider at risk, the insurer could put the patient at risk.

UpFront is a daily front-page news and opinion column. Comment directly to Winthrop Quigley at 823-3896 or Go to to submit a letter to the editor.