Pay For Performance Key to Post Reform Cost Management

Pay For Performance Key to Post Reform Cost Management

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Pay For Performance Key to Post Reform Cost Management
Calendar10 April 2015


The ACA presents an interesting challenge for employers. A number of the requirements — mandated essential benefits, no preexisting condition exclusions, free preventive care, and so on — push cost up, while at the same time high-cost plans will be subject to an excise tax beginning in 2018, making cost management an imperative.

In this environment, innovations that make health care delivery more efficient are critical to offsetting cost growth. Perhaps the most promising route to changing the underlying growth in the cost of health care lies in “pay for performance” strategies that reward health care providers for providing effective, cost-efficient services. The largest employers — those with 20,000 or more employees — are out front in this area. For example, we saw significant growth among these jumbo employers in 2014 in the use of accountable care organizations — affiliations of providers who work together to treat an individual across care settings (doctors’ offices, hospitals, and long-term-care facilities) — with payment tied to achieving health care quality goals and outcomes that result in cost savings. In 2014, fully one-third of jumbo employers offer an ACO to their employees, up sharply from 25% in 2013. More than half of all ACO sponsors (59%) say they actively encourage employees to use the ACO, and most provide lower cost-sharing and/or premium contributions as an incentive. While most of these employers (67%) say it's too soon to tell if the ACO is saving money, 34% believe it is.

The use of medical homes grew sharply as well among jumbo employers in 2014, from 13% to 20%. These are physician offices that assume accountability for access, quality, and annual total per-capita cost of care for enrollees.

Outside of market innovations like ACOs and medical homes, employers are adding plan design provisions that promote the use of cost-effective providers. Reference-based pricing enlists health plan members in exerting competitive pressure on providers with outlier costs. The health plan sets a maximum amount payable for specific procedures. Because higher than normal cost-sharing applies for providers charging more than the reference price, employees have a strong incentive to avoid the more expensive providers. Among jumbo employers, 15% use reference-based pricing, up from 12%. To ensure employees can avoid the higher-cost providers, a good quality transparency tool is essentially a prerequisite for this approach.

Interestingly, while value-based design — providing plan members with financial incentives to seek evidence-based treatment — is the most common of all these strategies for promoting the efficient use of the health care system, it alone is not growing among jumbo employers (47% of jumbo employers reported using value-based design in 2014, down from 50% in 2013). It may be that employers are finding it works better to incent providers to recommend and provide the most effective, cost-efficient treatments, rather than expecting patients to ask for them.

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