California Leading Payment Reform Effort

Steve McDermott runs a physicians group, but it’s his role as patient that makes him an expert on payment reform, he said.

“I had hip replacement surgery and let me say, it is a wonderful thing,” McDermott said. “I went from a grumpy old man to, well, just an old man. But yeah, it probably saved my marriage.”

But a look at the bill could’ve sent him back over the line far past grumpy, if he didn’t have medical insurance. The cost of a hip replacement, he said, is out of whack. “The cost is about $70,000 — not including surgery,” McDermott said. “And the number of uninsured in California is at about 23%, and that’s just unacceptable. If the health care system is the number-one cause of bankruptcies in the state, that’s not good.”

McDermott should know the numbers — he’s CEO of Hill Physicians Medical Group. McDermott was one of several health care experts convened at the Capitol building in Sacramento for the California Health Policy Forum organized by the Center for Health Improvement. One of the sponsors was the California HealthCare Foundation, which publishes California Healthline.

CHI released a policy brief on payment reforms at yesterday’s forum discussion.

The Hill group has taken a new tack with payments, McDermott said. Faced with competition from Kaiser Permanente, it decided to pilot a pay-for-performance model of care and to draw a line on premium cost. “Our main objective was to reduce costs and have quality remain the same,” he said. “We didn’t really know quality would actually go up, too.”

McDermott said the reform plan was not that novel — implementation of industry best practices, expanding IT efforts and “breaking the silos” of clinical care.

“Look,” McDermott said, “health care has been a cost-based model. We offer services, then we figure out the price. No other industry does that,” McDermott said. “What we did here is the opposite. We decided we’re going to agree to a zero increase in premiums. No one had seen a zero premium increase in some time.”

The results of the pilot project, he said, exceeded all expectations. “We had a 15% reduction in readmissions — and you know, in almost all cases, readmission is a bad thing, bad for patients, bad for a facility, bad all around. And the length of stay was reduced, there was a 15% reduction in inpatient days and a 50% reduction in inpatient stays.”

All of those numbers add up to better care at lower cost, which is the goal of the integrated care model, he said. “We actually beat our objective. And during this time, outside of this pilot, medical costs rose 20%,” McDermott said. “So we feel pretty good about that.”

There are two other payment reform models of care being piloted in California, according to the panel of experts. Accountable care organizations and a bundled-payment system are reforms that have shown good results so far, according to Suzanne Delbanco, executive director for the not-for-profit organization Catalyst for Payment Reform.

CPR tries to put the emphasis on value — combining quality and cost — for large purchasers of health insurance coverage, according to Delbanco. “Any one purchaser doesn’t have a lot of leverage,” she said, “but together we think we can improve value through payment reform.”

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