Rousmaniere: Insurers are Behind the Ball on Value-Based Care

January 17, 2018 - WorkersCompensation

By Peter Rousmaniere

Medicare and private health insurers are gradually converting fee for service reimbursement to some form of “value-based” reimbursement. Under this formula, the medical provider's reimbursement is governed by some measurement of fixed fee and/or performance.

Bundled, or fixed price, is one example. Penetration of bundled pricing and value-based reimbursement in the workers' comp industry is very limited. Here we describe how claims payers are passing up a big benefit to them.

Bundled payments are an alternative to fee for service. Former Liberty Mutual medical director David Deitz has looked closely at bundled payments. He told me that the primary driver behind bundled payments is aversion to fee for service. Fee for service care is inherently wasteful, easily gamed such by up-coding and adding procedures, and very complicated to pay for. It is practically impossible to build an outcome-based reimbursement contract on a fee for service foundation.

The core value proposition behind a bundled price in is that there is very likely a comprehensive price that is (1) below what a claims payer is likely to pay in fee for service and (2) acceptable to a medical provider willing to have a continuing relationship with the claims payer. A third element is that the deal effectively improves quality of care.

A bundled payment arrangement for workers' comp might be for knee arthroscopy, but it is viable for many knee, wrist, hip and shoulder surgeries. Careful analyses of physician practices have in fact led to setting agreed-to fixed prices for the day of surgery or for an entire episode of care, for most common conditions in workers' comp. As Dr. Deitz notes, this conceptually simple deal between provider and payer removes the evils of the fee for service system. It promotes a lot more careful planning and execution of treatment, which leads to lower prices and higher quality.

One organization with an ambitious program for alternative payment in workers' comp is Paradigm Outcomes. It takes on managing the treatment of very complex cases with total claims costs well in excess of one million dollars. Michael Choo, the firm's chief medical officer, says that the insurer pays a maximum total medical fee for an outcome the insurer wants and can measure – return to work. The clinical team can select which treatment options are best to achieve that goal.

Outside workers' comp there's been quite a lot of experimentation. This has spawned service firms that know how to develop bundled prices and other value-based reimbursement formulas.

Medicare in 2013 introduced a voluntary program involving 48 conditions, half of them surgical.

The program makes hospitals, practices, or facilities accountable for quality and costs for 90-day episodes of care. By 2017, 422 hospitals had signed up, about 12% of all potential participants. Many withdrew and by the end of 2017 about half were fully participating. Medicare announced last week a revised program.

For private health insurance, a survey of medical provider practices indicates that in 2017, 29% of private health insurer payments were in some form of alternative payment with risk sharing. The practices expect that risk sharing will increase to 37% in 2019, but that bundled reimbursement itself will remain a very small share of alternative payment.

Provider engagement is key. The survey found that lack of access to claims data and paucity of analytic software and analysts are the primary deterrents to willingly engage. Even so, the 2017 survey report noted that 60% of respondents stated they would be able to enter into downside risk products within two years, up from 42% in its 2015 survey.

This suggests that if a workers' comp insurer were to invest in alternative reimbursement, it will likely get takers. But are payers in workers' comp really interested? I'm aware of several initiatives in place for several years.

One ambulatory surgical center, which offers bundled pricing on many episodes and care, has strong demand health insurers but limited business in workers' comp.

New Jersey provides an example of the limited penetration in the workers' comp market for value-based purchasing. Horizon Blue Cross offers a workers' comp provider network, used by insurers controlling 47% of the insured market in the state. Horizon has been experimenting with value based purchasing since 2010. It finds no takers among workers' comp claims payers, even with a well-endowed provider network, with years of expertise in value-based purchasing.

What does it take to move the needle? Two things must be present. The payer has to see some material financial gain and be seriously interested in getting away from fee for service, not just complain about it. And the provider has to understand and streamline the elements that go into a bundled price. That way, the fee proposed to the medical provider is fact-based. An initial agreement for a pilot might be a price chosen by guess, but to be sustainable the provider needs to carefully engineer its services.

We are very much at the beginning of value-based pricing in workers' comp. Know-how is available. Payers are probably on balance lagging behind providers in interest. When will payers take seriously deals that lower cost of care, improve quality, and vastly simplify their operations?

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Peter RousmanierePeter Rousmaniere is widely known throughout the workers' compensation industry, both for his writing and consulting experience. Based in the picture perfect New England town of Woodstock, VT, he is a regular on the conference circuit, and is deeply in tune with trends and developments within the industry. His passion is writing and presenting on issues largely related to immigration, and he maintains a blog on the subject at