Bid to stem health spending is test of the Delaware Way

By Dan Linehan l Contributing Writer

Health-care spending should grow by no more than about 3 percent a year starting in 2020, according to an executive order signed by Gov. John Carney last fall. While there’s no penalty for stepping over the line, annual benchmark reports will identify unneeded care and other low-hanging financial fruit.

It’s a good start, says James Gill, a Wilmington family doctor and member of the Medical Society of Delaware, who was part of a board that advised the state on the benchmarks. “You can’t create a solution if you don’t look at the problem.”

The Delaware Healthcare Association, comprised of the state’s biggest health care companies, has taken a different tact, speaking out against the non-binding benchmarks.

“There’s a foundational problem with this approach,” said Wayne Smith, president of the association. “It’s entirely oriented to the question of how much we want to spend and doesn’t answer how much we need to spend to ensure the proper health care of Delawareans.”

In other words, the benchmark sets a target based not on residents’ needs for care but on a number that’s based on inflationary growth in the wider economy.

State officials say the stakes are too high not to act.

Without reforms, “health care will bankrupt the state’s budget and it will bankrupt the nation’s budget,” said Kara Odom Walker, secretary of the Delaware Department of Health and Services.

Why we spend

Delaware’s spending on health care continues to outpace inflation. The growth rate here has fallen in recent years, but hangs around 5 percent or 6 percent a year.

As of 2014, Delaware had the third-highest per-capita spending on health care in the nation and ranks 31st in health, according to the latest America’s Health Rankings report, released by United Health Foundation.

As an example of why Americans spend so much more on our health, consider one of our most most common complaints: low back pain.

For most people, lifestyle changes or a visit to a physical therapist or chiropractor are effective and inexpensive. But many patients ask for a magnetic resonance imaging, or MRI, scan. Doctors, who are generally paid based on how many services they provide, are often quick to oblige, Gill said. Such a scan is often the first step on an expensive journey, perhaps ending with surgery, that may not deliver better results, he says.

Smith, with the hospital association, identified external factors such as an aging population, rising pharmaceutical costs and other social factors.

The First State has the seventh-highest average age in the nation. It also has above average rates of obesity, diabetes and tobacco use.

Nationally, pharmaceutical costs have been skyrocketing, making it harder for hospitals and clinics to control their overall costs. Groundbreaking treatments that have emerged in recent years, such as the use of a body’s immune system to fight cancer, sometimes cost hundreds of thousands of dollars.

Carrot, stick or neither?

On the spectrum of government intervention to bring down health-care costs — which ranges from doing nothing to setting ironclad prices for services — Delaware’s non-binding benchmark skews in favor of a hands-off regulatory approach.

There are no penalties for not meeting the benchmarks nor rewards for meeting them; it’s about transparency, not accountability.

Walker, the state human services leader, says the state initially considered penalties and other ways to add some regulatory muscle to the benchmarks.

”We got a lot of pushback from hospitals in particular,” she says. In 2018, a letter from the Delaware Healthcare Association supported by the state’s biggest healthcare CEOs was critical of the benchmark and the process that was creating it.

“I think that the carrot and stick is important but you need legislative support,” Walker said.

The opposition led Gov. John Carney to forego the legislative process, where hospitals could make their influence felt, and create the benchmarks through an executive order. Instead of a benchmark with teeth, they ended up with a data collection tool.

Other states have taken more muscular approaches.

In Massachusetts, for example, lawmakers agreed on benchmarks and a system for putting health-care companies on a performance improvement plan and strict monitoring if they exceed the benchmark.

So far, though, the 2012 law hasn’t resulted in any of these performance improvement plans, though the prospect of triggering these measures has motivated companies to rein in costs, said David Seltz, director of the Massachusetts Health Policy Commission, an independent state agency to monitor health care costs.
He says Massachusetts hospitals initially opposed the legislation, saying they would be able to self-correct.

The bill was eventually passed in part because it was framed as an alternative to more stringent regulation, like rate setting.

“We ended up in a moderate position from both sides,” he says, adding that the state has tried to maintain a focus on the market to come up with solutions. In a sign of how far they’ve come, Seltz said the state’s hospital association in March testified in favor of a slightly lower benchmark — 3.1 percent instead of
3.6 percent — for the coming year.

Early arguments against the law, including that it would harm access for rural residents and lead to lost jobs, have not been borne out by experience, Seltz says.

It appears to have been successful in reducing the rate of growth. From 2012 to 2017, the average annual rate of spending growth has been 3.2 percent, below the benchmark and far below the nation as a whole. It may not sound like much, but if Massachusetts had grown at the average rate over that span, it would have spent $5.5 billion dollars more than it did.

One weak point: While overall spending is slowing down, health insurance premiums and copays — where most people feel the impact of spending — continues to rise, Seltz said.

He praised Delaware’s law for including quality targets alongside spending ones.

“It sends a very strong message that these two can and should be linked together. We can have better care at
the same time we’re reducing the cost of that care.”

Will Delaware eventually need to resort to more heavy-handed tactics? Walker said if medical spending continues to exceed the benchmarks, “then I think other solutions will present themselves.”

Not that she thinks it’ll come to that.

“I’m leaning on my optimism that Delaware is good at collaboration and very good at pulling together,” she says. It’s an implicit test of the Delaware Way, a model of regulation through relationships and shared trust.

A market asks to regulate itself

The central thrust of health-care spending reform is about incentives. When doctors are paid for how many procedures, tests and visits they perform, they tend to do more. But when they’re paid lump-sum amounts, they can find the most direct and inexpensive path to health.

The state’s largest health insurer, Highmark Blue Cross Blue Shield Delaware, says it is moving in the direction of incentivizing health companies to save money by letting them keep some of the money they save.
For example, the insurer rewards family doctors who help their patients avoid costly hospitalizations and emergency department visits. He said the effort, called True Performance, has resulted in $20 million in savings.

Its efforts to reduce costs are already yielding benefits, President Nick Moriello said.

Customers on Delaware’s individual marketplace, created as a result of the Affordable Care Act, saw premium increases of only 3 percent from 2018 to 2019, he said.

Ultimately, the goal is to motivate cost-cutting by signing agreements that require health companies to pay penalties if they don’t hit spending goals.

“If we can’t bend the cost curve and improve outcomes, it’s an issue for all of our society nationwide,” Moriello said.

If Delaware’s data collection effort works, it will be in part because it allows for a closer look at where spending happens. It could also involve spending more on primary care, an area Delaware underspends now, with the hope that it will prevent hospitalizations later on.

It’s like a family spending more at the grocery store to prevent costlier trips to the restaurant.

One bill aimed toward this goal, signed by the Gov. Carney last August, requires insurers to pay for primary care at no less than the rate Medicare pays for physicians.

Meanwhile, Smith, the hospital association president, says the industry is “anxious and ready” to move to new ways of paying for health care that drive down its cost. He expressed hope that the spirit of the Delaware Way will provide the vehicle to get there.

“One of the hallmarks of Delaware is we have a history, across many issues and many decades, of getting people in the same room and working together,” he said. Smith said he’s working with the state to create a system that “incentivizes health as opposed to a fee-for-service system that creates all the wrong incentives.”

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