Rising healthcare costs is a problem that seems to be on everyone’s mind, from patients to government officials. But what are the possible solutions? That’s a tricky answer, but one that Blue Cross Blue Shield North Carolina Chief Medical Officer Rahul Rajkumar seeks to find. And he’s got a solid idea on how to keep costs down – and keep quality care high. On this week’s episode of “The Cost of Health,” Rahul shares his thoughts on the factors that drive rising costs, a strategy for value-based reimbursement in North Carolina, and how it all works.

Rahul Rajkumar, MD, is no stranger to the doctor’s office, or the world of healthcare. He is the Senior Vice President and Chief Medical Officer at Blue Cross Blue Shield North Carolina.

“Prior to this, I worked with our CEO Patrick Conway in the government,” Rahul says. “I had a stint at CareFirst as their chief medical officer, but by training I'm a physician and I'm really a physician at heart, so I trained in internal medicine at Brigham and Women's Hospital in Boston.”

As a physician, Rahul is familiar with patient concerns. One of the largest concerns patients have today is the staggering amount of money it costs to access healthcare. Most North Carolinians are very familiar with rising healthcare costs. Our first question for Rahul is one that many wonder: why so high? What are the primary drivers of rising healthcare costs here in North Carolina?

“In pure economic terms, the cost of healthcare is the product of two things: its price x utilization,” Rahul says. “So, it's what's the price of every thing in healthcare that we use, and then, how much of it do we use? There's been a lot of study of both of these things over the last 20 years in the United States, and the truth is that both of these things are increasing. The prices in the United States are higher than they are in competitor industrialized countries. Depending on what country you're comparing us to, we seem to use more of it. It depends on the type of service, and it also depends on the part of the country you're in, but I think it's a safe statement that both price and utilization [are] higher in the US, and both have been growing at an unsustainable rate.

We spend just about 18% of our GDP on Healthcare -- that is double the average of other industrialized countries, and it is something that should keep all of us awake at night. It means that if we were to continue to grow – there are some projections that show us reaching 40% or higher GDP by the year 2050 -- it means that there's not enough money to pay for things that are dearly important to us like paving our roads, like defending our country. At every level, whether you're looking at national finances or families in North Carolina or anywhere in the US sitting around the kitchen table, it is a crisis. It is one that [has] evolved over many, many years, but it is a crisis.”

Rahul says that one approach is to shift the cost to the patient by raising the deductible or increasing the amount of cost sharing that patients face. But he believes that there is a better solution to rising healthcare costs.

“[A] strategy I think is more promising is to share more risk with providers. So if you think about in our healthcare system, who is the person that can make a difference? Who is the actor that given the right tools and the right data and the right incentives can do something about this? It's really the well-armed primary care physician.

The primary care physician in this future that we're trying to build is the quarterback of a patient's care. If they have the right incentives to refer patients to specialists judiciously, to choose the right medications, to be more cost-conscious, to intercept patients before they reach an emergency room, to broaden the scope of their practice and the scope of their responsibilities, to envelop patients in a deeper care relationship -- that appears to be the most promising strategy. And the beauty of it is that I believe that there is a path to produce truly better healthcare -- so a better experience for the patients -- to raise the quality of care, but also reduce cost at the same time.”

Also known as? Value-based reimbursement. Rahul notes that you’ll hear this concept under different names, such as his preferred term Accountable Care Organizations, bundled payments, or patient-centered medical homes, but the umbrella term for it is alternative payment models. It refers to ways of paying for healthcare that move us away from a fee-for-service model. Rahul refers to fee-for-service as “paying for healthcare by the yard; we pay [an] amount for every unit of healthcare.”

“If you remember nothing else of what I say today, this is the thesis: The way that we pay for healthcare matters, because it signals what we value to the market. At the provider's fee-for-service, we’re signaling that ‘the more you do, the more we’ll pay you.’ The goal of alternative payment models is to change the signal, and say, ‘We will reward you for providing efficiently, for managing total cost of care, and for improving quality of care.’”

Rahul has a vision for Accountable Care Organizations to become a feature in North Carolina. It takes time to implement, since physicians and the multiple healthcare systems that serve the state have to be on board.

“I can just give you the 30-second snapshot of what an Accountable Care Organization (ACO) is,” Rahul says. “An ACO is always a contract between a group of providers and a payer. Let’s say I'm Blue Cross and you are a group of providers. We use an algorithm call ‘attribution’ to assign patients to you [the provider]. We do that based on where patients have historically gone. We look at your past, we look at your claims history, and we look at where your foot traffic has gone, and you get a list of patients that you're accountable for.”

A mathematical formula is used to predict total cost of care that those patients -- based on their past needs and future predictions -- will need, and Blue Cross will set a benchmark at that price.

“The deal is if you can beat that benchmark, you will share in the savings. If you exceed that benchmark and you're in what's called a two-sided risk model with us, you share the losses with us. We don't want to put you at severe risk, we want you to have some skin in the game, but we put some quarters around that risk so it's enough risk to motivate you and to give you and your providers the right incentives. But you're also rewarded for taking that risk. And then we adjust those payments based on your quality of care -- adjust them upwards or downwards depending on your aggregate quality score -- until we're measuring quality and cost at the same time.

“In the Medicare world, the first Medicare ACO program was something called the Pioneer ACO program. This program saved $385 million over two years.” Rahul says. “In the commercial world, Blue Cross Blue Shield of Massachusetts in 2009 rolled out something called the Alternative Quality Contract, which was the first commercial ACO contract. It saved about 5 -10% over a four-year period. These are substantial savings.”

Rahul hopes North Carolina may have its own ACO contracts sooner than imagined. But there is work to be done beforehand.

“We here at Blue Cross are trying to engineer the most rapid move to value of any commercial payer in the country. We are trying to move 50% of our payments here at Blue Cross North Carolina into alternative payment models within 2 years. This is a faster pivot, I believe, than any commercial payer has attempted in the US. In order to do this, there are a couple of things we need to prove. [We need to prove] that we can be good partners to providers, so [we’re looking] around our state, we look at the major health systems, and we are talking to all of them right now. But the first step is on us. That manifests itself in being transparent about our methods, about developing the model together well, to enable their success. By giving them data, because you really can't take a risk and do this kind of work unless you have data from the payer. And also giving them the clinical tools they need to succeed under these constructs.”

When we’ve spoken about value-based reimbursement here at the N.C. Coalition for Fiscal Health, many of our Facebook constituents asked questions about the concept. Rahul provides thoughtful answers to some of your serious concerns on measuring quality and costs under a value-based care model.

To listen to this week’s podcast episode, and learn more about the possibilities of Accountable Care Organizations in North Carolina, 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 michael@fiscalhealthnc.com 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.

Have the sky-high costs of healthcare in our state impacted you and/or your family’s lives? Do you want to do something about it? Join the Coalition now to receive updates about new legislation and policies that will affect YOUR healthcare. Sign up now!

How to Take Action

Our Coalition is only as strong as our advocates. Grassroots support is how we effect change. Take Action for lower healthcare costs.

Take Action