Paying for the ACA

What effect is accountable care having on the employer/provider/payer relationship? Ron Calhoun, national healthcare practice leader, Aon Risk Solutions and Michael Taylor, national health & benefits strategist, Aon Hewitt, offer their views.

For all the debate and controversy that’s surrounded the Patient Protection and Affordable Care Act (ACA) of 2010, it’s fairly well accepted that the desire to provide better access to healthcare lies at the heart of the sweeping reform. What is often missed in this public discourse is the much-needed action in terms of lowering healthcare costs and driving efficiencies in the American healthcare system. 

Plagued by skyrocketing costs, employers have struggled for years to identify strategies that would allow them to continue providing the valued benefit while keeping a lid on expenditures. Opponents of the ACA claimed it would result in even higher healthcare costs, but the opposite may turn out to be the case, as it has lit an absolute fire under employers and providers and set the stage for true transformation in the $2.7 trillion US healthcare system.

Employers must, with equal focus, address the declining health of their employees and families and exert pressure on health plans and providers to change how we direct people to, and how we pay for, healthcare services.

According to a 2014 Aon Hewitt survey of nearly 1,300 large and mid-size US employers covering more than seven million employees, 53 percent said that moving towards provider payment models that promote value in the form of cost-effective, high quality healthcare will be a part of their future healthcare strategies One in five respondents identified it as one of their three highest priorities.

Seeking to eliminate the problematic incentives embedded within fee-for-service payment models, employers are aggressively pushing for reform in the provider payment system, embracing strategies that hold doctors and hospitals accountable for producing better outcomes more cost-effectively—and decreasing or increasing their compensation based on meeting specific performance targets. According to Aon Hewitt’s survey, 31 percent of employers have already adopted such a provider payment strategy, while an additional 44 percent say they are considering doing so in the next three to five years.

The result will be a competitive, retail-like setting in which providers are no longer rewarded for the number of procedures performed, but will be forced to compete for business based on quality and price.

As soon as 2016, it’s expected that 50 percent of major health plan contracts will be value-based, consisting of one or more of these new pay-for-value methodologies. Medicare is already closing in on 50 percent of the funds it pays every year being some kind of value-based mechanism. On the commercial side, it currently stands at just over 10 percent, but carriers are already hard at work, changing their existing contracts from fee-for-service to one of these new pay-for-value mechanisms. It’s a monumental task.

Paying for value, not volume

Recently—and prior to the passage of the ACA—carriers had been experimenting with performance-based contracting, issuing bonus payments to hospitals for meeting certain quality metrics. As a result, we began to see the emergence of narrow networks that didn’t contain all the hospitals in a given market. In the aftermath of the ACA, narrow networks have become commonplace, as carriers pressure providers to agree to such pay-for-value contracts in order to be competitive on the public exchanges.

A small, but growing, number of employers are entering into direct contracting arrangements with health systems, offering financial incentives for improved-access, lower-cost, higher-quality medical care. Nearly one-third of large employers are interested in direct contracting, according to Aon Hewitt research. Such arrangements give employers the ability to secure care at lower prices and give them greater oversight with regard to quality, access, and patient experience. Not surprisingly, only the largest employers have the necessary resources to enter into such agreements, with the likes of Boeing and Intel among the first to announce they have inked direct contracts.

The quality measure conundrum

The key difficulty in establishing an effective pay-for-value program lies in choosing appropriate benchmarks. Over the last 10 to 15 years, we’ve become much better at collecting data and understanding variations in medical practice and a wide variety of quality measures have evolved. This evolution, however, has created a new set of challenges. It is becoming problematic for the providers to manage the current reality of each payer requiring adherence to a different set of metrics for defining quality of care. Likewise, each employer cannot have its own custom-designed set of metrics used to establish quality.

We must settle on some common metrics and collectively apply pressure in the marketplace to ensure that those metrics are measured. This must be a collaborative effort, bringing together providers, carriers, and employers to decide on the most appropriate metrics and the appropriate methodologies to collect them.

Once all this data is collected, it has to be made widely available in order to help achieve the original goal of higher-quality care at a lower cost. A common set of quality measures will not only be useful in designing and managing effective pay-for-value programs, employers can also use them to help inform about, and steer their employees and dependents to, those facilities which have demonstrated best value in terms of cost and quality.

Partnering for results

Employers and carriers must enter into these kinds of arrangements with the full recognition that the act of providing healthcare is extremely complex and some factors that affect cost simply cannot be controlled, even by the best physicians and hospitals. Therefore, we need to strike a balance between exerting pressure on the provider to control costs, while also being respectful of the fact that what they do is very challenging. In the end, we must concede they know best how to deliver care, but at the same time, they must be willing to rationalize their delivery of care in order to meet market needs.

A growing number of employers have also begun working directly with health plans to adopt more aggressive techniques to coincidentally address the challenges within our healthcare delivery system and the way they purchase healthcare. This has led to a massive interest in integrated delivery models, such as patient-centered medical homes, to improve the effectiveness of primary care, a fundamental piece of the ACA structure.

According to Aon Hewitt research, just 14 percent of employers currently use such models, but a whopping 61 percent say they plan to do so in the next several years.

Consolidation

In recent years, there had been a dramatic increase in the number of accountable care organizations (ACOs). Prior to the ACA, there were approximately 20 to 30 of these fully-integrated healthcare systems in existence. Now, there are approximately 630 ACOs in operation. Specific market dynamics coupled with the capital requirements necessary for an integrated delivery system to transform into a true ‘population health manager’ have been contributory factors in the increase in consolidation among hospital systems (such as the proposed merger of Northwestern Memorial HealthCare and Cadence Health, in the Chicago area).

Clearly, the trend toward consolidation was already in full swing, but the ACA acted as a catalyst, hastening the pace at which providers joined forces. In particular, the ACA’s definition of an ACO led to a vast acceleration of hospitals banding together with physicians in order to become such an organization and reap the benefits. Such consolidation also gives a provider the scale necessary to negotiate effectively with carriers in the marketplace. 

An emerging consumerism model

At the same time as they are joining forces, providers are also being pressured to deliver a consumer-focused healthcare experience with additional services such as on-line appointment scheduling, after-hours access, family support during in-patient stays, etc. In addition, carriers are increasingly expected to provide enhanced decision-support tools, as the public exchanges created by the ACA continue to propel the provider industry towards consumer-directed healthcare. 

Currently approximately 80 integrated delivery systems maintain their own provider-sponsored health plans, with an additional 37 percent considering the formation (or re-formation) of a health plan within the next five years. These health plans will also be required to focus on the individual consumer and deliver the requisite consumer-facing tools such as decision support and social media apps.

Conclusion

There are some nascent efforts at collaboration between all stakeholders (employer, provider and carrier) in order to more equitably design the right path and, more importantly, to sustain it. This represents a fundamental behavior change and will need some time and some transparency before it becomes ‘contagious’.

Debate over whether the ACA was fundamentally right or wrong will likely continue unabated. However, there’s no denying it set us down the path to unprecedented change. We stand at the precipice of an absolute tipping point in the healthcare landscape. The provider world is undergoing a massive transformation that will not only change the way doctors, hospitals, and healthcare systems are paid, but also how they are assessed in terms of quality and value, how and where services are rendered, and how employers purchase this vital benefit.

Ron Calhoun is national healthcare practice leader at Aon Risk Solutions.
He can be contacted at: ron.calhoun@aon.com

Michael Taylor is national health & benefits strategist at Aon Hewitt.
He can be contacted at: michael.taylor@aonhewitt.com