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Seriously, Stop Overpaying Your Providers

October 30, 2017

In healthcare as in life, you get what you pay for. But what if you’ve been paying all wrong?

Today, Healthcare Simplified host Tyler Willse interviews Suzanne Delbanco with Catalyst for Payment Reform (CPR) about her work with creating better patient outcomes by aligning provider payment with benefit design.

Delbanco has spent the last 18 years trying to make the healthcare system work better—particularly for employers and other groups that have to buy benefits for lots of people.

As a doctor’s daughter who didn’t want to be a clinician, Delbanco wanted to have an impact on making healthcare better. “I realized that a lot of the potential leverage is with those who pay the bills,” she said.

In the last 7 years as the director of Catalyst for Payment Reform (the healthcare system needs CPR), she’s been providing thought leadership to and coordination among employers and other healthcare purchasers. “One of the underutilized levers is changing how we pay doctors and hospitals,” Delbanco said.

Employers as payers wield a considerable amount of power. And it starts with understanding the traditional way that providers and doctors get paid.

The Awfulness of Fee-for-Service

“We pay mostly using what’s called a fee-for-service approach,” Delbanco said. It’s like paying an individual amount for every little unit of service or testing or procedure.

If you plan your own vacation, you pay individually for the flight, a rental car, your hotel, and each meal you eat and activity you do. Versus the package price vacation, where you pay $3,000 to buy all of those things in a bundle, so to speak.

Transparency is a decided benefit for fee-for-service, but if you aren’t an expert in hip replacement, you don’t know what you need to buy. “How am I supposed to know as a lay person that I’m going to need a pre-surgery evaluation all the way to physical therapy after the surgery is done?” Delbanco said.

Which is why the package price is so attractive—the security that you have a known price for everything you need.

The fee-for-service approach is how providers are typically paid. Delbanco calls it problematic because that payment method has nothing whatsoever to do with whether the care is actually appropriate.

Or the quality of the care. Or making the care coordinated, seamless, and positive.

“Instead, it’s inherently inflationary,” Delbanco said. “It basically says to healthcare providers, ‘The more you do, the more you’ll get paid.’”

Well, you get what you pay for. (And what we’ve paid for is inappropriate, expensive care.)

“In some ways, it’s been doing exactly the opposite of what we would want in terms of making sure that the right patient’s getting the right care at the right time in the right way in the right location,” she said. “And that’s, after all, what we’d all want for anybody we care about.”

What Employers Can Do

On the one hand, most employers feel comfortable with tweaking their employees’ healthcare experience—by making programs available, exploring alternative benefit designs, offering incentives for certain choices, employee education, and so forth.

On the other hand, the whole area of how healthcare providers get paid is usually several steps removed from the employer. “The insurance companies set up not only how much they’re going to pay the providers for different things but how they’re going to pay,” Delbanco said.

Since the Affordable Care Act, there’s been a huge reform movement in how we pay for healthcare.

Seven years ago, it was 98% fee-for-service. Today, it’s about 50%.

How come? Well, now there are incentives or bonuses to providers on top of those piecemeal payments. “Furthermore, there’s been a bigger movement even just in the last few years towards setting target budgets for providers and saying, if you meet or beat this budget and still meet the quality standards, you get to share in some of the savings,” Delbanco said.

Some providers are taking on financial risk by saying if they beat the budget they get to keep some savings, but if they overspend they have to eat the costs.

Among Delbanco’s clients are very large employers. “Some of them have created direct contracts with providers to meet the needs of their population where they are paying the provider directly,” she said.

Often, the employers choose bundle payment. “They pay a package price for a whole episode of care, and they say to the provider, ‘I’m going to pay X amount whenever a patient of mine comes your way for a hip replacement or spinal surgery or whatnot,’” Delbanco said.

The provider essentially agrees to provide the list of services as a bundle.

Smaller employers have to think about either getting involved in payment directly or persuading their health plan carriers to do this on their behalf. “And that’s something that my organization’s been very involved in,” Delbanco said.

So, is there a way for employers to dictate consumerism in healthcare—in both providers and employees?

“I think of us as being in that awkward adolescent stage with the evolution of payment or form and benefit design,” Delbanco said. Eventually all the parts will move together comfortably, but at the moment, things are still changing.

Historically, Americans have been insulated from the cost of their healthcare choices. Individual consumers had no need to refer to cost in making healthcare decisions and believed in the quality of their providers.

“Unfortunately, over the last 15-20 years, we have not only learned that there is huge variation in quality. But we’ve also learned that we pay wildly different amounts for the same thing,” Delbanco said.

This has nothing to do with levels of quality. It’s just providers’ negotiating strength.

Getting Employees to Shop Smart

“What has become immensely popular right now are high deductible health plans,” Delbanco said. “There’s no question that they help reduce healthcare spending on the part of consumers.”

This can be great if it encourages people to forego healthcare they don’t really need.

Or it could be bad because consumers don’t always know what they do and don’t need. For example, if someone with a chronic condition misses a checkup with their specialist, that could lead to worse health outcomes and more expensive care later on.

“We’ve got a lot of learning to do about how to get the right balance,” Delbanco said.

People need to feel invested in how much they’re spending on their healthcare choices—and they need to be able to afford the out-of-pocket demands so they don’t refrain from getting care altogether.

Part of this is training consumers to be commodity-driven, critical shoppers.

Data from a large employer with a high deductible health plan showed that people were searching for commodity services where quality doesn’t vary much but prices do vary a lot—like labs and MRIs.

There’s also reference pricing. An employer analyzes the cost of commodity services with big variations to see where they can draw the line in what they were willing to cover and still have adequate access and coverage for their population.

“In the San Francisco Bay area, a large employer did an analysis and found that for screening colonoscopies there was a range in price from around $600-$800 to about $6,000 for the same procedure,” Delbanco said.

So the employer said they would cover about $1,200 and the rest would be up to the employee.

“Employers save money,” she said, speaking of reference pricing. “As long as there’s enough education and communications, employees or other members of the covered population do make different choices.”

For nonemergency procedures, reference pricing encourages consumers to become more active shoppers while still providing great coverage.

For self-insured employers or those with fewer employees, the place where they are going to be most able to voice their preferences as a customer is with their health insurance company or carrier. Demanding new ways of paying providers that will improve quality and contain costs is a major point of leverage.

Right now, only about 2% of U.S. healthcare payments are bundled. “So there’s a lot more talk than action still,” she said.

It’s getting there, though. “Some providers are willing to do something new like a bundle payment particularly for a smaller employer because there’s not a lot of risk involved,” Delbanco said.

It’s a smaller portion of the population and lets the provider try out the process so they can figure out how to scale it up. Soon—hopefully—bundles will be much more widely available.


To learn more, visit the CPR website at An employer can register for access to all of the organization’s free tools, including webinars, and their low cost educational courses.

Tune into Healthcare Simplified by subscribing to the show on iTunes or your favorite podcast player.

Until next time!


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