New Report: Health Care Payment Reform Could Save U.S. $200 Billion-$600 Billion over Coming Decade, but Implementation Challenges Are Substantial

Americans could realize net savings in health care costs of around $200 billion to $600 billion cumulatively over the next 10 years if concerted action is taken to reform care provider payment incentives, including moving away from the traditional fee-for-service model, according to a new working paper by UnitedHealth Group’s (NYSE: UNH) Center for Health Reform & Modernization.

The working paper, “Farewell to Fee-for-Service? A ‘Real World’ Strategy for Health Care Payment Reform,” is being launched at today’s Forbes ‘Healthcare in the USA Forum’ in New York. (To read the full report, go to: www.unitedhealthgroup.com/reform.)

Underlining the size of the opportunity, the report also finds that U.S. physicians say that care costs could be cut by an average of 18 percent without any impact on quality, and 59 percent of physicians report there are meaningful differences in the quality of care provided by doctors in their local areas – although only 44 percent of consumers are aware of them.

“It is time to move past talk and convert the broad national consensus about the need to ‘pay for value not volume’ into action. Payment reform is only going to move the needle on U.S. health spending growth if it is implemented on a massive, industrial scale,” said Simon Stevens, chairman of the UnitedHealth Center for Health Reform & Modernization, executive vice president of UnitedHealth Group, and one of the paper’s authors.

Speaking at today’s Forbes Health Forum, Stevens said, “We will need to provide doctors and hospitals with constructive support during the transition, but savings ultimately have to flow to consumers and can’t just be recycled and retained within the health care system.”

The federal government projects that national health spending will rise from $2.8 trillion to $4.8 trillion over the coming decade, accounting for nearly 20 percent of the U.S. economy. Paying health care providers on a fee-for-service basis is one of the key contributors to the quality and cost shortfalls in the current health system, recently documented by the Institute of Medicine, among others. This new UnitedHealth Group research therefore sheds light on three important debates on U.S. health care and government entitlement program reform:

  • Under what scenarios could provider payment reform make a meaningful fiscal impact on Medicare, Medicaid and overall U.S. health spending?
  • What do the emerging ‘real-world’ data reveal about the success – or failure – of new payment models as tools for improving health care quality and affordability?
  • How can gains from payment reform be achieved in practice, recognizing that hospitals and physicians will need support in making the transition, and their uncertainties and tradeoffs about how best to do so?

Key findings

1. Care provider payment reform has the potential to slow U.S. health spending growth and improve the sustainability of Medicare and Medicaid – but it won’t be a ‘silver bullet.’

By looking at different scenarios for net savings and speed of adoption, the report estimates that care provider payment reform could slow U.S. health spending by between $70 billion and $1.01 trillion cumulatively over the coming decade, with more likely savings in the $200 billion to $600 billion range. Around half of these savings might accrue to Medicare and Medicaid.

This analysis suggests that payment reform could make a meaningful contribution to slowing the growth of U.S. health care costs. But it also underlines the fact that even under optimistic assumptions about net savings and speed of adoption, U.S. health spending would continue to grow faster than incomes, suggesting that payment reform is not a ‘silver bullet’ and will need to be pursued in tandem with other initiatives.

2. New ‘real-world’ data suggest innovative payment models can indeed improve health care quality and affordability.

U.S. physicians say that health care costs could be cut by 18 percent on average without jeopardizing care quality, according to a national Harris Interactive survey of doctors, whose results are reported in the working paper. (In a parallel survey, consumers sized the savings opportunity at 25 percent.)

Nearly 60 percent of physicians surveyed also stated that there are meaningful differences in the quality of care provided by doctors in their local areas. (By contrast, only 44 percent of consumers were aware of these differences, suggesting a meaningful ‘transparency gap’ between care providers and the general public about care quality.)

These physician survey results are broadly consistent with other empirical data presented in the working paper that demonstrate that higher quality/more efficient care episodes cost on average 14 percent less – a result that helps quantify possible savings opportunities from episode-based payment ‘bundling’ initiatives. This analysis is able to draw on performance data on the quality and efficiency of care provided by about 250,000 physicians in 21 medical specialties across the United States, accounting for more than 60 percent of covered health costs.

Acting on these insights, UnitedHealthcare – the nation’s largest private payer in employer-sponsored, Medicare and Medicaid benefits – now links more than $18 billion of its hospital and physician payments to value-based reimbursement mechanisms. The paper describes how these mechanisms span the spectrum from pay-for-performance, through various forms of payment bundling and risk-sharing. While some of these approaches are mature and widespread, others are at earlier stages of testing.

The paper discusses the practical experience and early results from a number of these payment reform initiatives, including:

  • new data from UnitedHealthcare’s patient-centered medical home pilots showing a 2:1 return on investment;
  • UnitedHealthcare’s chemotherapy payment bundling pilots;
  • Optum’s experience with outcomes-based contracting with centers of excellence for complex care;
  • UnitedHealthcare’s performance-based contracting initiative for doctors and hospitals;
  • Optum’s ‘collaborative care’ physician gain-sharing and capitation models; and
  • UnitedHealthcare and Optum’s Accountable Care Organization partnerships.

3. The apparent national consensus on moving away from fee-for-service to payments that reward value not volume masks some important uncertainties and implementation tradeoffs, and care providers will need active support to make the transition successfully.

Drawing on UnitedHealth Group’s “real-world” experience in testing and scaling payment reform measures, the report recommends practical strategies for major stakeholders in the health care system to accelerate payment reforms that will begin to address the cost and quality opportunity.

In doing so, it notes that the Harris Interactive physician survey revealed mixed views about the fee-for-service system, indicating that the fee-for-service reimbursement model is ingrained in the U.S. health care system and will take time and effort to replace. The surveys show only modest current support among physicians for more broadly adopting pay-for-performance initiatives: about 33 percent of physicians said that the percentage of reimbursed services based on cost or quality of care should be increased, while 28 percent said it should stay the same. In addition, only 28 percent of doctors thought that practices in their area were prepared to assume greater responsibility for managing their patients’ care, and only 12 percent were prepared to assume greater financial risk for that care.

The report also discusses a number of likely trade-offs inherent in new incentive and payment models, and their implementation, including: What is the right balance between local adaptation vs. national uniformity, particularly in public programs? Where to strike the tradeoff between clinical sophistication vs. ease of administration and scalability of new incentive structures? Will greater financial risk-sharing by care providers accelerate consolidation that in turn drives costs higher? To what extent will gross savings be used to incent care provider participation, as against being released as an efficiency “dividend” to lower health care costs for families, employers and governments? How to advance multipayer initiatives that are easier for care providers to respond to, but which may result in slower “lowest common denominator” solutions?

About the UnitedHealth Center for Health Reform & Modernization
The Center is a substantial long-term commitment by UnitedHealth Group to advance sophisticated and practical approaches to health care modernization and reform. Its multi-disciplinary team of business leaders, economists, physicians and policy analysts supports the Company’s internal strategy development and innovation agenda, with a particular focus on PPACA and associated market developments. The Center’s public work program involves assessing and developing innovative policies and practical solutions for the health care challenges facing the nation. Its work includes innovative approaches to expanding health care coverage; practical cost-containment strategies to slow the growth of U.S. health care costs; and options for modernizing Medicare and Medicaid. Drawing on UnitedHealth Group’s internal expertise and extensive external partnerships, its published work is available at www.unitedhealthgroup.com/reform.

About UnitedHealth Group
UnitedHealth Group (NYSE: UNH) is a diversified health and well-being company dedicated to helping people live healthier lives and making health care work better. With headquarters in Minnetonka, Minn., UnitedHealth Group offers a broad spectrum of products and services through two business platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides information and technology-enabled health services. Through its businesses, UnitedHealth Group serves more than 75 million people worldwide. For more information, visit UnitedHealth Group at www.unitedhealthgroup.com.

Contacts:

UnitedHealth Group
Tyler Mason, 714-299-5730
Tyler.Mason@uhg.com
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