By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

Let’s play a word association game. I write “health care reform.” What comes to mind?

Probably “Obamacare,” and probably, if you live in Arkansas, not in a positive light. You might next think, “private option,” the state program that uses federal dollars under Obamacare to buy private insurance for lower-income Arkansans.

Meanwhile, there’s another important health care reform effort underway. While Obamacare and the private option are mostly about expanding health coverage, the Arkansas Payment Improvement Initiative is meant to address the biggest problems with the health care system today – costs and incentives.

The United States spends 18 percent of its gross domestic product on health care, far more than the rest of the industrialized world, and gets no better overall results. Too much of the care provided really doesn’t help the patients. These high costs and inefficient process occur largely because the system is based on what policymakers call “perverse incentives.” Medical providers are paid by the procedure, not the outcome – not for making us well and certainly not for keeping us from ever getting sick.

They don’t try to make us sick, of course, but the system’s incentives do influence their focus – how much effort they expend on preventive care, for example. As CHI – St. Vincent CEO Peter Banko told me, “Until you change how we’re being paid, you’re not going to see changes in the system.”

So Arkansas is changing the way they’re being paid.

As part of the Arkansas Payment Improvement Initiative, state agencies, insurance providers Blue Cross and Qualchoice, the Arkansas Hospital Association, and the Arkansas Medical Society collaborated to try to determine appropriate practices and acceptable ranges of costs for various “episodes of care.” They started with five situations: pregnancies; total hip/knee replacements; outpatient upper respiratory infections; congestive heart failures; and attention hyperactivity disorder.

For each of those episodes, a principal accountable provider now serves as the “quarterback,” meaning he or she is the main decision-maker responsible for coordinating all providers who are delivering care. That’s unlike a typical health care episode, where no one is in charge and patients are just handed off from provider to provider – each of whom runs their own tests for which they charge insurance companies and taxpayers. For hip and knee replacements, the quarterback is the orthopedic surgeon, who is responsible not only for the procedure but also for the 30 days prior and the 90 days afterwards.

After 12 months, the quarterbacks’ total insurance and Medicaid claims are totaled. Those whose costs are below “commendable” levels receive a bonus payment, and those whose costs are above “acceptable” levels pay back part of the excess cost.

Early results are promising. According to the Arkansas Center for Health Improvement, providers are performing more preventive tests for diabetes, HIV and other conditions in pregnant women. That makes sense, because they’ll be penalized if they don’t catch these health issues and costs rise later. Unnecessary antibiotic prescriptions for unspecified upper respiratory infections have dropped 19 percent. That’s important because antibiotics have no effect on, say, a cold virus, but the overuse of them leads to harmful effects, such as creating drug-resistant bacteria.

Again, incentives are the key. As Arkansas Surgeon General Dr. Joe Thompson, a pediatrician, explained, “It was easier for me to write the prescription for the mom whose kid had a cold than it was for me to spend the 10 minutes telling her why she really didn’t need the antibiotic.” Now that doctors face a financial penalty for prescribing a useless drug, they’re more likely to give that explanation.

One obvious concern is that providers will cut corners in order to shave costs, but that’s not been the intent. Providers still have plenty of incentives to provide effective care, including of course, their desire to serve patients. Keep in mind that more care is not necessarily better care and can be much worse for the patient. CHI – St. Vincent is participating in a similar pilot program through Medicare where the hospital and doctors are paid a set amount for joint replacement procedures and must control costs to make a profit. The result? Hospital readmissions have been reduced by two-thirds.

I asked Banko why the hospital and doctors didn’t make those changes beforehand. He replied, very forthrightly, “There was no financial incentive to.”

Who knows if all this is going to work, but it seems promising. What America needs isn’t more health care – but better and more affordable care. That will only happen when the incentives change.