Paying Doctors More Adds Upto More Savings, Employers Say

A new model has proponents excited that improved primary care will lead to cost savings in the future, but upsetting the status quo has its risks.

August 31, 2008
Employers desperate to reduce health care costs are embracing a new strategy: Pay doctors more.

    Tired of filling the gaps in a fragmented health care system with their own piecemeal solutions, employers such as IBM, Boeing, Hannaford Bros. and others say they are willing to pay primary care doctors more if doctors spend more time managing and coordinating the health care of their patients.

    "I can buy a damn good amputation for my diabetic," Paul Grundy, IBM’s director of health care technology and strategic initiatives, says of the current health care system in which specialists are paid more than primary care doctors. "But what I can’t get is a good system in place to prevent the diabetic amputation."

    That’s beginning to change as large employers and a handful of states and private practices working with employers are piloting programs to demonstrate the effectiveness of what proponents say is a transformative new model for the American health care system.

    The model, known generally as the medical home, involves paying primary care doctors extra for doing things to help keep patients healthy but for which doctors have not previously been compensated. These include coordinating care among a patient’s team of specialists; providing patients with immediate telephone, e-mail and in-person access to doctors, nurses and other health care advisors; using electronic health care records as a means of avoiding the duplication of services and other errors; following commonly accepted guidelines of care; and having programs that help doctors improve the care they offer patients.

    "Medical home" was a term originally developed by the American Academy of Pediatrics in 1967 to refer to a central location for a child’s medical records. It has been expanded in recent years to a broader concept to improve the system for providing primary care. While the medical home can refer to a patient’s primary care provider, who is paid more to take a greater role in managing a person’s health and coordinating medical care, it is also, Grundy says, a concept that "pulls together some very foundational issues that we really have to focus on but haven’t as buyers of health care."

    If it works, medical homes could not only improve people’s health care and reduce costs but could also help resolve the shortage of primary care doctors in the U.S. by making the practice more financially and personally rewarding, doctors say.

    In New Orleans, where primary care doctors have been in short supply since 2005’s Hurricane Katrina, health care experts believe medical homes are an opportunity to rebuild the health care systems for the city and Louisiana. Frank Opelka, a professor of surgery and vice chancellor for clinical affairs for Louisiana State University Health Sciences Center in New Orleans, says the current system, which pays doctors on average $60 a visit, is broken. It creates an incentive for doctors to spend as little time as possible with as many patients as they can. Patients often go months between visits. The chronically ill may have other specialists who care for them, with each doctor or disease management nurse operating separately without the benefit of working together, sharing knowledge of the patient or reviewing whether treatments work.

    "Currently the way we are practicing chronic-disease and well-being management is piecemeal, not coordinated, and therefore it has lots of points of failure," Opelka says. "Our system is focused on acute care, and we deal with that quite well. Diagnose, treat and we’re done. But when those conditions lead to chronic illnesses like diabetes and hypertension, we haven’t had a good system for keeping those people as healthy as we possibly can and doing it in an evidence-based, cost-efficient manner."

    Opelka decided to use revenue from his 400-doctor group practice to support six doctors who manage his clinic’s medical-home practice. The practice also is staffed by two nurse practitioners, two nurse managers who administer the disease management programs, and a bevy of administrative staff.

    "The medical home is comprehensive, continuous chronic care run by a primary care physician," Opelka says. "During points of acute care, they serve as care coordinators."

    Opelka hopes that on any given day his doctors see 30 patients—half the national average, he says. The practice gives doctors time to review cases and discuss with other doctors the best way to treat a person’s illness. Patients are regularly contacted by phone and e-mail to make sure they are complying with their medical regimen.

    Opelka believes the medical home gives patients better care. He estimates the added cost of providing it would be about $30 per member per month for a practice that sees 500 patients. Whether it cuts costs remains a closely watched issue.

    "There is hope that the focus on primary care will reduce costs and improve quality, but again I think there is no evidence yet that it actually occurs," says Joseph Fortuna, a former medical director of auto parts maker Delphi and member of the employer-led Automotive Industry Action Group. "But you know how employers are: They want you to show them the money."

    Proponents point to a medical-home pilot program launched in 1998 for Medicaid patients in North Carolina as a model that has shown cost savings. An actuarial study by Mercer showed a savings of $124 million in 2004, when compared with projected health care costs if the program had not been in place.

    "Many of the medical homes as conceptualized by physician organizations are predominantly focused on quality and customer service and access, and that’s the purpose for which they are designed," says Arnold Milstein, medical director of the Pacific Business Group on Health and a senior consultant at Mercer. "The notion of reducing total employer spending is not an explicit part of the design, it’s a hoped-for consequence."

    Part of the problem is that the success of medical homes may cause hospitals and specialists to see their revenue reduced, leading them to make it up in wasteful ways, Milstein says.

    Fifteen states have enacted legislation to create or encourage the creation of medical homes for children with chronic illnesses. The number of states that have established pilot programs for medical homes for the general population is smaller, in part because medical specialists and other interest groups may lose out.

    Pilot programs are operating in Alabama, Illinois, Louisiana, North Carolina, Pennsylvania, New Jersey and Rhode Island, while Minnesota, Colorado, New Hampshire, Oklahoma, Washington, Idaho and Oregon are considering them. Ed Fischer, a principal with Mercer, says some states are concerned that the medical-home model’s challenge to the status quo makes it a political issue. As a result, at least one state has not yet publicly announced its pilot program, he says.

    "It’s too political right now to talk about," Fischer says.

    Employers also could face a backlash from employees concerned that medical homes would replace their current doctors.

    "One approach employers are contemplating would not ask the patient to leave their current doctor but would regard this as … adding a physician coordinator to the mix," Milstein says.

    That is the model embraced by Boeing, which has undertaken three small pilot medical-home programs in Seattle. In February 2007, Workforce Management published a cover story showing the backlash that the aerospace company faced when it excluded employees’ doctors from a network of so-called high-performance doctors. Boeing did not respond to an interview request for this article.

    The company is following a model similar to the medical home, called the ambulatory intensive care unit, which concentrates on much sicker, chronically ill patients. Designed by Mercer and the California HealthCare Foundation, it is designed to reduce health care costs by 30 percent by providing intensive outpatient care by doctors and nurses for low-income, chronically ill patients. If the model is successful, Boeing may expand it for other employees.

    In July, an employer-led coalition that includes doctors and health insurers called the Patient Centered Primary Care Collaborative published a purchaser’s guide that it believes will help employers "create market demand" for medical homes. The guide features case studies by states and employers such as IBM, which is developing medical homes in the Hudson Valley region where the company is concentrated, including its Armonk, New York, headquarters.

    The hope is that the medical-home model can be duplicated in regions where patients with chronic illnesses have found it difficult to receive the kind of personalized, daily care that may keep them out of hospital emergency rooms.

    At Roy O’Martin Lumber Co. in Alexandria, Louisiana, Ray Peters, vice president of human resources, says many of his employees live in rural areas and lack access to primary care physicians because of the state’s shortage. He says he is looking at ways his company can pay doctors to create medical homes. He believes employers should worry more about improving the quality of medicine than about how much it costs.

    "I don’t use terms like ‘saving money.’ I use terms like ‘getting better value for your health care dollar,’ " he says. "It may be more prudent to spend more money upfront."

    In a medical home, Peters says, "the emphasis is on the care side rather than on the economics, with the caveat that with better care, the economics will take care of themselves."