Rewarding Preventive Care in South Carolina

South Carolina has set out to end fee-for-service payments and instead put money in the pockets of providers who create healthier populations.
by | July 24, 2012

David Levine

David Levine is a GOVERNING contributor.

It's become something of a truism that the way we pay our health-care providers in America is all wrong. Rewarding quantity (fee-for-service payments) over quality (outcomes) helps the doctors' and hospitals' balance sheet, but it hurts nearly everyone else's. Changing that scenario has become the holy grail for many looking to reform our health-care system, including Tony Keck, director of South Carolina's Department of Health and Human Services.

"We're spending a lot of time with providers trying to correct problems caused by the way we pay people," he says. "My elevator speech is all about aligning incentives to deliver high-quality, cost-effective care." And he hopes to achieve this by rewarding preventive care and cutting down on all the things that put the biggest financial burden on health care; that is, paying providers to keep people out of the emergency room, off expensive medications and away from the hospital once they leave it.

Keck took some time recently to explain his plans in this edited transcript.

Can you explain what's wrong with fee-for-service payments?

I tell a story to everyone I talk to that illustrates the problem. We have a large, integrated health system in Greenville that, a few years ago, spent time re-engineering a clinic that served primarily a Medicaid population. Over an 18-month period, they were able to reduce hospital readmissions by over 50 percent and emergency room admissions by 25 percent. They also showed significant improvements in key health indicators. They did it the good, old-fashioned way through case management -- getting people to see their doctor and take their medications.

They replicated that success over two studies. They did everything right, had great outcomes, and they were getting zero dollars for it. The doctors and hospitals got punished financially because the way they make their money is through ER visits and hospitalizations. It's not their fault. It's not their patients' fault. The fault is with the payer -- it's Medicaid's fault, Medicare's fault and Blue Cross Blue Shield's fault. I use that story across the state to show providers that we know you do things that create value and we don't pay you for them. We want to unlock that.

How do you do that?

We've been talking with providers and payers across the state to figure that out. We're asking, how do you create that shared risk so everyone is in it together? We are starting to see arrangements that mutually manage these populations and share the returns. We have two types of managed care here. One is a capitated model; the other is a shared savings/medical homes program, where we pay private health-care providers $10 per member per month to create the network and pay the doctors. If their costs are lower than traditional managed care, we split the savings with them.

We're currently working with stakeholders to combine aspects of both models. We like capitation to get everyone under one umbrella, and we like the savings potential of the medical home model. In mid-July, Blue Cross Blue Shield of Greenville created a new corporate entity for the Medicaid population in that county that's responsible for care management and will share savings.

We're also encouraging another medical home network to apply for an HMO [health maintenance organization] license. It will be the first hybrid model to use capitation payment but keep its PCP [primary care physician] network to keep shared savings.

We're working with providers to move the market and to help people figure out what is right for their community and their business model.

How do you change the payment model?

Payment reform is very exciting. One of the biggest barriers to change is that we have many different payers, and it pulls providers in lots of different directions. We joined Catalyst for Payment Reform (CPR), which is primarily an employer-led effort -- Boeing, GE, Walmart -- organized around the idea that we must pay providers differently to improve value. CPR understands that all these employers -- many of which have a big presence in South Carolina -- work with all these different plans, and they can't get them to do the same things. That's frustrating for employers.

We have an internal Medicaid Coordinated Care Improvement Group that's working with CPR to restructure Medicaid managed care contracts to pay for performance-based HEDIS [Healthcare Effectiveness Data and Information Set] measurements, incentivize best practices such as patient-centered medical homes and reduce providers' hassle such as excessive prior authorizations. We'll incorporate their model contract language into our managed care contracts. South Carolina is the second Medicaid agency after Ohio to join CPR.

What do you hope to accomplish with that?

The model contract language sets very specific goals, objectives and requirements in moving to value-based payments. The goal is to have 20 percent of all payments made under a value-based model by 2020. I'm pushing them to move faster than that, but I'm the new guy in the group.

We could be heavy-handed and require prior authorization for everything, but that leads to lots of problems, and we believe providers try to make the best decisions. So you have to change the incentives. For instance, when working with providers, they get worked up when we talk about reducing the number of babies going to the neonatal intensive care unit (NICU). Every time that happens, 90 percent of the fee covers cost, and 5 percent is profit. The organization cares about profit, of course. So if they could avoid the cost but still get the profit, it's a win for them and a win for me. If I agree to pay them the 5 percent to keep the babies out of the NICU, then I don't have to pay the 100 percent.

What would you like to see happen in South Carolina in the next five years?

My goal is to reach the same 20 percent of all contracts written this way, but I set that goal for 2016. A few years ago, the Institute of Medicine set a goal to reduce wasteful spending by 1 percent a year for the next 10 years. If we save 1 percent of our annual budget, that's $60 million a year. I could fund all of our early child education programs with that. And that's how we think about it. We want to send this money back to the treasury to be used elsewhere, and still get the health-care job done.


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