One Antidote for Wooden-Headed Reimbursement

We have discussed (here and here) wooden-headed reimbursement policies in health care, and the perverse incentives they offer. Reimbursements made by insurance companies/ managed care organizations and government agencies in the US are rarely related to the perceived values of the reimbursed services or goods to patients, the benefits versus harms provided by the goods or services, or the costs of making the goods or providing the services. Instead, reimbursement generally tends to be higher for newer, more "high-technology," and procedural goods and services. Furthermore, the amount paid to physicians and other health care professionals to talk to, examine, and think about patients in order to make the best possible decisions on their behalf falls ever farther behind inflation.

The Wall Street Journal just reported a possible antidote for these sorts of wooden-headed reimbursement policies. To summarize, Aetna Inc., a large managed care organization, confronted the leadership of Virginia Mason Medical Center (a major academic medical center in Seattle) with its high costs compared with other hospitals. The Virginia Mason leadership was open to making changes, and developed a team approach to streamline its services. Resulting innovations included a simplified method for handling lower back pain, emphasizing, as per the best available evidence, early physical therapy for uncomplicated cases; starting patients with gastroesophageal reflux disease (GERD) when possible on generic drugs, which are generally as effective as brand-name drugs for this condition; and increasing the provision of "rescue" drugs for recurrent migraine headache to patients with this problem .

But these innovations, although they lowered costs and seemingly were good for patients, hurt Virginia Mason's bottom line. For example, "the big employers saved $100,000 in the first year. But Virginia Mason fell into the red on the average migraine case, instead of breaking even as before."

Amazingly enough, Aetna was understanding. "A novel solution, crafted with the help of the big employers, ultimately let Virginia Mason share in some of the savings it created -- by paying the medical center more for some cheaper treatments."

As the article noted,

Insurers often reimburse high-tech procedures richly, while simpler remedies and visits to doctors, therapists or nurses earn far less and sometimes incur losses. With each MRI that Aetna and the employers avoided at around $850, Virginia Mason lost about $450 in profit. The payment system of government-sponsored Medicare, which private health plans also use as a template, tends to reward the big capital expenses of buying high-tech machines such as MRIs. The more the machines are used, the bigger profit margin they pack. Meanwhile, reimbursement fees for doctors' visits have stagnated.

'The payment system is so toxic,' says Francois de Brantes, a former health-care program director at General Electric Co. 'Unless you tackle it, any health-care reform doesn't have much chance.'

The big problem, however, is that Aetna only accounts for about 10% of Virginia Mason's revenue. So,

Virginia Mason's move is a gamble. Only Aetna, which accounts for 10% of the medical center's business, has adjusted fees to reward its more efficient care. Seattle's two biggest health insurers, Regence Blue Shield and Premera Blue Cross, haven't matched the move so far. Medicare, despite its own experiments, doesn't have the flexibility to change its payments for one hospital -- and it accounts for a third of Virginia Mason's business.

Thus, it is not clear whether this radical experiment will work. It does demonstrate that some clear, honest thinking exercised simultaneously amongst health care professionals, leaders of academic medical centers, insurers, and employers can come up with reasonable solutions to wooden-headed reimbursement. Of course, such solutions may rapidly become unpopular with those who will make less money as a their result.

But give the Aetna, Virginia Mason, their leaders and health care professionals, and local employers a lot of credit for clear thinking and the willingness to go against the prevailing dogma.