It’s no secret that healthcare costs in North Carolina and across the country are on the rise. But what can be done to lower healthcare costs? On this week’s episode of “The Cost of Health,” we get an insider look on the real ways to keep costs down. We chat with Dr. Patrick Conway, President and CEO of Blue Cross and Blue Shield of North Carolina, for his take on what’s driving the spike and how it can be combatted.

If anyone knows what is taken into consideration when pricing healthcare plans, it’s Patrick Conway. Before being named the president and CEO of BCBS, Dr. Conway served as Deputy Administrator for Innovation and Quality at the federal Centers for Medicare and Medicaid Services (CMS), and as Director of the Center for Medicare and Medicaid Innovation (CMMI), working with both Republican and Democratic administrations on value-based care. He’s also a practicing pediatric hospitalist, with first-hand healthcare experience that is valuable to his current role. He’s working to establish value-based care – also known as value-based reimbursement – in North Carolina, where our healthcare prices continue to rise.

“The primary drivers of costs going up are prices,” says Dr. Conway. “There's actually evidence around this -- prices in the U.S. and in the North Carolina market have gone up significantly faster than inflation for things like hospital care, pharmaceuticals, and other areas of care.”

While prices have increased, utilization (or use) of healthcare has remained stable or even decreased. It begs the question: What can we do to save North Carolina residents from continuing to pay these high premiums? The best thing, Conway says, is to partner with medical providers and create joint accountability to bring costs back down.

“The big opportunity that we’re working on now is partnering with large health systems,” Dr. Conway shares. The biggest five health systems in North Carolina have 50% of the costs – which is more concentrated than most states. “Historically, payers and providers have fought in a more confrontational way and then unfortunately the patient can get caught in the middle. What we're focused on is how we partner with providers. For example, a contract like an accountable care organization. What that means is the hospital, health system, and doctors are going to be jointly responsible with us for the quality and the total cost for your care. You align those incentives. This was true in Medicare and I think it will be true in BlueCross and North Carolina. Quality goes up. Patient experience improves and costs come down.”

If you’re thinking that this sounds a lot like value-based reimbursement, you’re right – it is.

“It is value-based reimbursement,” Dr. Conways says. “I'd say [it’s] value-based reimbursement on the next level, if you will. Right now, over 80 percent of payments from BlueCross North Carolina are value-based – meaning there's some adjustment for quality in costs. That's terrific. Now, it's taking this to that next level, where it’s really joint accountability. Where the provider says ‘You know, my goal is the best possible quality and the lowest costs and a great experience.’

I'll give you a tangible example. If you're a hospital today, we pay a fee for service. We pay by volume. When CEOs and CFOs talk about heads-in-beds, [they mean] the more heads I have in beds, the more revenue I get for the hospital. We need to flip those incentives. It has to be that a hospital or health system is incentivized to keep heads out of beds, because I have never met a hospitalized patient ever that says, ‘I love being in the hospital! I want to stay here.’ You know they all want to get home as soon as possible, and stay home.”

In short, value-based reimbursement would allow hospitals and care facilities to focus on the quality of care rather than the volume of patients generating profit. There are many types of value-based reimbursement plans that can work.

“There are different flavors of value-based reimbursement,” Dr. Conway says. “For large health systems, [utilizing] Accountable Care Organizations [would work best], where, at least for their primary care population -- meaning the population [of patients] that they care for all the time, not specialty care -- they're caring for total cost care and quality. Then for specialty care, the model that often works best is to do bundled payments.”

We recently covered bundled payments here. Bundled payment arrangements are made between the provider and insurer, and patients benefit from lower overall health care costs. Bundled payments are already established in North Carolina.

“A good example of bundled payment is a hip and knee replacement. Right now, we have a program that saves 10 percent to 30 percent and it has better quality when you pay for a 90-day episode around the hip and knee replacement,” Dr. Conway says. He also notes that the value-based bundled payment allows the healthcare facility to focus solely on the needs of the patient, not the costs.

“The providers are all incentivized to work together to care for the patient.”

Dr. Conway points out that the quality of care is where the biggest shift needs to happen. Incentivizing healthcare facilities to cater to the quality of care for the patient population in the way that’s best for them, instead of what’s standard. This could really change the delivery method of a lot of healthcare services.

“Patients love it. Doctors love it,” Dr. Conway says of the shifting focus from volume payments to value-based payments. “And as a payer, you can allow us to control those medical costs and improve quality.”

Dr. Conway has more to say on how joint-accountability programs could benefit North Carolinians and some “gold standard” examples of similar programs in other states. To learn more, and find out what North Carolina business owners can do to move forward with value-based plans, download our podcast here, or listen to the full interview below.

If you have a story to share about the impact of healthcare costs on your family or business, let us know at or on twitter @michaelck.

Past (and future) episodes of our podcast “The Cost of Health” are available for download. Visit here, or listen and subscribe on your favorite podcast app.

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