New Approaches to Payment: Will They Work?

April 22, 2013

Great news! The latest and greatest approaches to reducing health care spending are here: paying primary care doctors more, bundling payments for doctors and hospitals; sharing savings and investing more in systems that integrate care. Hooray! New answers to the cost curve dilemma!

The question is: will any of these approaches actually work?

As it turns out, we’ve been down a similar road before. Remember care management? Back in the 1990s, it was “the” answer to the health care cost problem. Vendors were the ones to promote this particular solution; their sales pitches offered employers and health plans returns on investment (ROI) of up to 5:1. This was an attractive notion to employers and other purchasers who were struggling (as they still are) to contain spending on health insurance.

The problem with these pitches was that they were, at best, misleading. To understand the numbers, you really needed to read the fine print in the studies behind them—assuming that those studies were even made public! And generally, the numbers applied only to very small populations for very limited periods of time. So when we look at the claims for ROI the way most employers would—as they apply to their employee populations—we find at best, these programs generally break even.

Now, breaking even is not a bad thing. Breaking even can still add value, if the services provided actually improve health. But unfortunately, that’s not how those programs were sold, and that led to a lot of cynicism about the value of care management interventions.

Today, we are in danger of repeating the care management story, as every new model gets touted as having a major impact on health care spending.

The accountable care organization (ACO) model is the hot concept today—in the 1990s it was PHOs. The two models have a lot in common: hospitals and physicians working together to better coordinate and integrate care. In the 90s, we saw many hospitals purchasing physician group practices. Later, many of these same hospitals determined their own culture and incentives were just too different from those of the physician groups they had purchased: they vowed not to do that again.

Yet now, we see hospitals re-entering this arena. Today, they say they’ve learned from the past, and now have better data and more aligned incentives from payers. And, of course, some providers have been successful with this model.

Perhaps the providers are right. This time may be different from the last. I don’t want to be so cynical as to say that learning from the past is not possible, and that things can’t be done better this time around.

But I do want to be cautious and avoid repeating the worst mistakes of the past. As we celebrate these new approaches to provider payment, let’s not declare victory too soon. All of these approaches have some legitimate foundation and can improve things directionally from the approaches we are using today. Let’s give them a chance to work, evaluate their strengths and weaknesses, and understand the value they can add before we declare—once again—we have “the” answer to health care in America.