The Great Insurer Fee Disconnect

A message to health insurance CEOs, COOs, and CFOs.  I believe there to be a fundamental disconnect between typical health insurer provider reimbursement strategies and the long term good of our healthcare delivery system and its financing.

Let me give you some examples which I know, as a former health insurer COO and CEO, to be true.

  • Insurers still pay primary care physicians far less than most specialists.  That perhaps was a function of the RBRVS system adopted by Medicare to “measure” the demands of specific physician activities and pay accordingly.  Specialist activities were rated higher than primary care activities.  They were deemed more complex, often involving surgery and fancy equipment with more training needed, etc.  The gap between primary care and specialist reimbursement grew and grew.  And what happened?  Predictably, the best and brightest are avoiding low paying primary care.  Consequences?
  • Shortage and aging of primary care physicians who are needed to keep us from requiring the much more expensive specialist and hospital care
  • Oversupply of specialists resulting in overuse, because if you build it they will come
  • Keeping the focus on sick care, which is what most specialists specialize in, rather than well care
  • Devaluing E&M (evaluative and maintenance) activity, which is the heart and soul of the practice of medicine, requiring observation, patient knowledge, and perception

  • Not paying for needed counseling and monitoring, which means no one does it and there is no quarterback for a patient’s care
  • Many hospice organizations provide acute care for terminally ill patients in a setting that is far more patient and family friendly than a hospital based ICU, and at tenth of the cost.  What about this is there not to understand?  And yet, many insurers (including Medicare) negotiate with hospice organizations exactly as they do with specialists and other providers, trying to achieve reimbursement at the lowest possible level, without thought to whether that makes overall sense.  Consequences?
  • Shortage of hospice acute care facilities
  • Longer hospice eligible patient stays in hospital ICUs
  • Bloated end of life expenses that could be mitigated
  • Significantly worse patient experience
  • Worse outcomes (and I’m not talking about death, but rather quality of life while still alive)
  • Commoditization of acute care undifferentiated as to its cost
  • Virtually the entire insurer response to behavioral health office visits and counseling is contrary to common sense and the good of the system (financially and otherwise) and its patients.  Insurers squeeze office visit reimbursement, limit the number of office visits, and often resist collocation and integration of behavioral and physical health.  They underpay psychologists and clinical social workers, the front line of counseling. They overpay psychiatrists, who largely are prescribers of meds. Consequences?
  • Mental health parity remains largely a myth in reimbursement, despite claims to the contrary.
  • Limits on behavioral health office visits do tremendous harm.  Behavioral health patients do not overuse office visits!  And limits create emergency situations, particularly during end of year holidays, that glut emergency departments and do tremendous harm to patients
  • Still no collocation and integration of behavioral and physical health
  • The best and brightest become psychiatrists who seldom counsel.  They dispense medications and “monitor.”  All at over inflated costs.
  • Tremendous shortage of professional counselors and burn out of those who are in the field today, because at today’s reimbursement levels, they can’t pay their own bills
  • Insurers paying physicians for telemedicine patient consults (“visits”) at 50% of a regular office visit.  Consequences?
  • Physicians resisting telemedicine visits which are clearly needed, particularly for the elderly and chronically ill for whom travel is a hardship
  • Missed visits and consults that should be occurring
  • Exacerbated inconvenience for patients
  • Lack of recognition of the added cost and hassle factor of technology and other expenses and work flow changes needed for telemedicine and potential additional malpractice exposure
  • Fewer “maintenance” and counseling sessions which are badly needed for the chronically ill
  • Greater emergency room and inpatient use overall

Permit me to share a truth with you.  OFFICE VISITS NEVER BREAK THE BANK!  Never.  It’s the lack of office visits which exacerbate already existing chronic situations that result in in patient hospitalizations and specialist involvement over extended periods that break the bank.  The other item that breaks the bank is the leveraged whammy of untreated combined psychological and physical health maladies which are the single biggest driver of fee for service Medicaid expenditures today.  Again, office visits never break the bank.

Many insurers are not using reimbursement as the strategic tool that it is to better the system and reduce overall costs of its own insured population.  Just the opposite.  The folks in the “Provider Reimbursement Department” who have done trench warfare with physicians for decades are saddled with a Cold War mentality in which they push for the lowest reimbursement possible regardless of whether it makes sense.  Almost a Pavlovian response.  They never saw a negotiation that shouldn’t be “won” by lowering fees.

In some situations, that makes sense.  But not in all situations.  Theirs is a tough, tough job.  But even if they are hammers, not everything is a nail.  Money can be like lubricant or a growth tool, when spent properly.  What types of services do you want to incent and grow?  Presumably, those that might reduce the overall use of services in America and improve patient quality of life.  But many insurers, for negotiation purposes, continue in an undifferentiated pattern to treat office visits exactly the same as knee replacements and open heart surgery.

This is exacerbated by the fact that typically, primary care, behavioral health, and hospice providers do not practice in large groups with negotiating leverage.  So, many insurer negotiators drive reimbursement down simply because they can.   Penny-wise, etc.

What if insurers doubled the per diem reimbursement of hospice inpatient acute care?  It would then perhaps be 20% of hospital-based ICU care. And the additional dollars would help hospice organizations build more facilities and capabilities to start moving more terminally ill out of hospital based ICUs to much kinder and gentler settings at a fifth of the cost.  In fact, it might be good strategy to look at the panoply of hospice care such as home-based palliative care, and incent its growth as well for all the obvious reasons.

What if insurers dramatically increased the compensation of primary care physicians, helped with their technology needs, and had, say, a med school loan forgiveness program?  Some insurers are doing just that, including my  Rhode Island Blue Plan.  What might be the results?  More primary care doing more of the needed things to keep us out of hospitals.

It is not always about driving the lowest reimbursement possible.  Healthcare costs are not just fees.  They also are driven by use and the relative expensiveness of the services.  These last two are today’s biggest contributors to our out of control costs of healthcare and its financing.

I know for a fact that there are many in insurer senior management who, in quieter moments, would totally agree with this.  But whether they drive that message down into their organizations is another thing.  Cold War warriors do not change easily.

Jim Purcell was the CEO of BCBSRI.  Prior to that, he was a trial lawyer in healthcare, and today he mediates and arbitrates complex business disputes and is focused on workplace wellbeing.  jamesepurcell.com (healthcare) and jimpurcelladr.com(mediation/arbitration).

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18 replies »

  1. I agree John, which is why we can’t expect the healthcare system by itself to be wholly responsible for these social issues. The system (hospitals, doctors, nurses) has enough on its plate just dealing with trying to make people better. We need other institutions to step in to help correct the socio-economic factors. However, despite those socio-economic barriers, given the right tools, people can make good decisions. Heck, as you know, even those with all the advantages still make poor decisions.

  2. Barry, there is an important distinction here that is easy to forget. Preventive care can save money in two ways: 1) on an annual basis, averaged over many individuals in similar circumstances; 2) on a cumulative total basis, averaged over a lifetime. I don’t think there is any evidence preventive care saves money on a cumulative, lifetime basis, for the simple reason that to the extent it does its job, people live longer and the older one gets, the more care one tends to need as multiple systems start to break down in old age. Also, more years of life mean more years of engagement with the health care system. The math is hard to escape that preventive care is unlikely to save money overall. However, if done well, it can save money for those in a given age or risk cohort on an annual basis, and of course its greatest value is that it prolongs life.

  3. Completely agree, James (I tried answering Perry directly as well). Also, this is a great post, as so many of yours are. One quibble: while I agree that provider contracting staff shouldn’t always try to drive the hardest bargain they can for the lower cost alternatives, precisely to make them more attractive and crowd out the more expensive alternatives, looking for efficiencies is always important. To take your telemedicine example, 50% of on-site reimbursement may be too low, but I don’t think we in general want to aim for 100% either. There are conveniences of online visits to the provider as well as patient, and there is no reason for the provider to pocket all of the difference between the cost of the two (reduction in staff time, no need to clean equipment, perhaps no need to use office space, etc.). I suspect you would agree, but just wanted to draw this out.

  4. Perry, a more factual statement is that much of maintaining health about personal behavior (along with genes, luck, environment and social factors). But responsibility for that personal behavior can be shared across both the individual and social actors (family, government, church, etc.). Someone raised in a deeply impoverished environment, arguably, shouldn’t be seen as solely responsible for poor choices. To put it in practical rather than moral terms: if you want to succeed in making a change in personal behavior, you need to work on the social determinants of health and not just exhort people to make long-term rational decisions. Skip the social environment and you will fail. So, saying it’s “really about personal responsibility” is both morally and practically questionable.

  5. But really, much of maintaining health is about personal responsibility isn’t it?

  6. If there are many things that should not be covered under health insurance, we should stop covering them because they inflate the cost of the insurance policy making it less affordable for more people. Of course, the ACA would have to be either revised or replaced to allow that to happen

    As for preventive care, I’m in the personal responsibility camp. If people don’t want to act in their own best interest, it’s their choice..

  7. To Perry and Barry: So much depends on your philosophy about people. Should they be expected to do what they should do, or do we have to make it really wicked easy for them? Quite a bit of preventive care is NOT cost effective, but like changing the oil, ya gotta do it. And about covering it. There are many things which should not be covered under health “insurance” if it is really insurance.

  8. “People should pay for that themselves rather than run the cost through an insurer which has to tack on its overhead. No?”

    I think that’s fair Barry. Part of the reason we’re in this mess is “comprehensive” care, and sooner or later the piper has to be paid. ACA has mandated all these preventive measures which is likely contributing to the rising premiums. We need the most financial help when we’re very ill, cancer, heart disease, etc.
    As Mr. Purcell put it above, office visits are not breaking the bank here.

  9. Jim — Thanks for your response.

    My impression is that there is also a lot of controversy around the extent to which wellness and preventive care saves money for the system. Also, preventive care always struck me as similar to changing the oil in my car. People should pay for that themselves rather than run the cost through an insurer which has to tack on its overhead. No?

  10. Nod and nod again. I have always thought we equip PCPs to quarterback the system with longitudinally plugged in EMRs and extenders. They start to get paid for quarterbacking care and spending time with say 12 patients a day who really need them, who they get to know, and who can be helped. Perhaps we identify not just the chronically ill, but also those at risk, and that’s who they focus on. So much more…

  11. Wrong, my friend. Perhaps in the old days it was a percentage of claims, but no longer. I’d say take my word for it, but I suspect you won’t.

  12. And IF we think it through, it makes such sense. Triage so that ear aches and sore throats go elsewhere (to an extender or Minute Clinic). I know we have to change how PCPs are paid, and we’re starting to do that.

  13. All good points Barry. The hospice issue first. We are still WAY behind in our use of hospice by any measure. The inpatient might displace a little home care, but most people with the supportive resources would much rather be at home than even in a hospice in patient setting. There are so many who have no home support and no alternative but to a hospital which is stuck with a patient it would normally discharge to hospice but can’t.

    On primary care, you’d think right? Some of the troops in the trench would say paying more than the competition to primary care would make them uncompetitive price wise. Nonesense. Now does it give you a competitive ADVANTAGE? Probably not, because PCPs treat all their patients the same regardless if they are insured by a “friendly” payor or not, as they should. But it’s one of those things that are the right thing to do.

    Behavioral health? Sure tough to measure, but so common sensical that we shouldn’t let the difficulty of measuring it get in the way of doing something that is so clearly right–sorta like wellness and preventive care.

    Thanks for the comments

  14. It’s hard for me to accept that there aren’t some pretty smart people at United, Anthem, Aetna, Humana, Kaiser or the remaining non-profit Blues that haven’t figured out that total claims costs could be lowered if primary care doctors were paid more per visit. If that were the case, premiums would go down, market share would go up and total revenue and profit would increase if one or two companies did this successfully while others didn’t or wouldn’t.

    I’m more skeptical about the savings potential in behavioral health because it’s so much harder to measure or even determine progress as compared to, say, managing blood pressure, glucose levels or HbA1c.

    With respect to hospice care, I doubt that large numbers of patients are staying in ICU’s for extended periods as opposed to pursuing expensive cancer treatments that aren’t working. Also, hospice care through home visits must be significantly less expensive than inpatient hospice care. If there were more inpatient hospice care available, it seems that it would just displace home hospice care at much higher cost. Finally, I wonder how many people delay signing up for hospice care because they perceive it in our culture as “giving up” as opposed to continuing to “fight” for their life. Fighting is seen as brave and courageous while giving up is cowardly. That’s unfortunate and I suspect that a similar mentality is not nearly as prevalent in other developed countries.

  15. As you know Jim, CMS and Medicare reimbursements are drivers for insurance company reimbursements. With the SGR of course, physician payments were not keeping up very well with inflation and the costs of doing business. Now CMS claims it is going to “value” primary care and pay for that “value” based on a 900 page document full of twists and turns. The consensus seems to be that while some practices (particularly large groups with hospital affiliations and money to start up ACOs or PCMHs) will do quite well, small private practices will suffer. After all, someone has to be low man on the totem pole.
    In the end, we will have to see if MACRA makes much headway in reducing costs and improving “quality”. From the looks of it, I’m not so sure it will diminish administrative and documentation headaches either.
    Meanwhile, studies show that these smaller practices with Mom and Pop type approaches work very well in keeping patients out of the hospital. This is a result of the now declining physician patient relationship. My concern, as well as many colleagues in Primary Care, is that these smaller practices will fall off the MACRA cliff, or be bought or absorbed by larger entities, in the end, resulting in Mega practices which will be like Walmart vs local stores, and some of those old fashioned values and relationships will be lost.
    As Dr. Holm has pointed out below, we have been asked to do more with less time and more documentation. The so-called wellness visit is all over the map, what does that mean and why do we do it? I have to say when I trained 30 years ago the annual physical was a combination of getting to know the patient, recommending preventive care and testing, and doing some basic lab tests. While I don’t think we need to go into as much depth these days, the relationship building and preventive maintenance has its place. After all, we do the same with our automobiles.
    As for chronic care, many of these patients have multiple morbidities, but also significant educational and socio-economic barriers to care. These cannot be addressed in brief encounters. It takes more time and effort to convince a patient they don’t need something than just to order the test to make them happy. It may also take more time and effort to convince the patient they DO need that mammogram or colonoscopy.
    In the end, the practice of medicine is a major art form consisting of some knowledge of people and human nature, combined with the current scientific or evidential knowledge (which varies regularly) and trying to put the two together to make and keep humans healthy, or at least stable. What is society willing to pay for that art?

  16. Thak you for this post, Jim. The degradation of the office visit is a tragedy. In addition to decreasing reimbursement, the expectations of what is to be accomplished are increasing. The 15 minute or less visit is completely inappropriate in most cases of chronic care. The system has gotten exactly what it has paid for: rapid fire, low yield, ineffective and high cost care. Thanks for sticking up for Primary Care.

  17. Consequences? Insurers’ profit is a percentage of their total premium, so the higher total expenses are, the higher their profits. And they get to call executive salaries in the tens of millions ‘expenses’. Why would they want to change?

  18. The life of a central planner is tough….the new schemes never work well…..but then again, there is always room to float some different plans for pricing and reimbursement….the new ones certainly will be better!
    Give patients the money (thru health savings accounts) and let them seek out value….it is transformative even if only 10% of patients do it well and the benefits of the work of these 10% accrue to every patient (and innovative, high quality docs/systems).