Pay doctors to keep patients healthy rather than just for treating illness

While Australia’s health system compares well internationally, costs are rising. So are chronic diseases related to unhealthy lifestyles, such as heart disease, diabetes and some cancers. Health policy experts are becoming increasingly concerned about how the fragmentary nature of our health system can cope with the challenges of the 21st century. The root of these concerns lies in the antiquated fee-for-service payment system for doctors.

One chink of sunlight is the Council of Australian Governments' (COAG) hospital funding deal signed between the Commonwealth and the states in April. The governments are committed to developing models for better coordinated care and reducing avoidable readmissions to hospital. This includes trialling a new model of Health Care Homes, where patients sign up to one GP clinic for all their care needs.

The Health Care Homes model could provide a route to real reform of Medicare. But we still need to fix the antiquated way we pay for care – fees for services when patients are sick. Some of the most innovative recent ideas in payment reform can be found in an unlikely place: the United States.

As US President Barack Obama outlined in a recent academic paper (a first for a sitting president), the Affordable Care Act (Obamacare) has not only reformed the health insurance system, it has, in many cases, also changed the way doctors are paid.

So, how do these alternative payment models work?

The first, Accountable Care Organisations (ACOs), are groups of providers, including doctors and hospitals, who coordinate to meet quality targets and save on expenditure.

Providers in ACOs are paid for their services in the normal way through fee-for-service. But, at the end of the year, providers have the possibility of earning an extra bonus: half of their “savings” relative to expected expenditure for their patients.

So if a group of patients is expected to cost Medicare US$10 million over the year and the providers servicing these patients manage to reduce this to $9 million, the providers will share $0.5 million in bonuses.

This incentive is crucially linked to the ability of doctor’s clinics and hospitals to meet quality targets. This could mean controlling diabetics’ blood sugar or controlling blood pressure for patients with hypertension.

Other quality indicators are based on keeping patients out of hospital for avoidable admissions, such as for complications of asthma or readmissions following routine surgery.

So if a group of doctors and hospitals manage to reduce their costs while keeping their patients from having more than expected hospital admissions, they stand to gain.

The second key alternative payment model being introduced through Obamacare includes variations on the “medical home” model. This is a “capitation-type” payment system where doctors are paid a monthly “management fee” for enrolled patients, which should cover all of their primary care needs. The fee is typically US$20 per month.

While some patients will use more than their US$20 per month, others will use less, balancing the budget overall.

Doctors have no incentive to recommend unnecessary “follow-up” appointments. They can also employ more efficient models of care, such as using nurses in place of doctors for routine tasks and coordinating care.

While many of Obamacare’s payment reforms are too new to have been fully evaluated, they offer the tantalising prospect of cost control and quality improvement.

A striking aim that Obama sets out is for Medicare to make at least half of its payments through alternative payment models including ACOs and medical homes. He is well on the way to meeting this goal, with the current figure at 30%.

However, the most radical change in payment schemes trialled recently in the US addresses an issue commonly raised with traditional pay-for-performance: patient compliance.

For a group of patients at high risk of a heart attack, both doctors and patients were offered financial bonuses if outcomes targets were met. Doctors were paid based on keeping patient LDL (bad) cholesterol below a target value. Patients were paid for regularly taking their medication (cholesterol-reducing statin drugs).

This innovative intervention relied on electronic pill bottles, which wirelessly transmitted a signal to the internet when opened. The study found a significant improvement in outcomes (LDL cholesterol reduction) – but only when patients and doctors were both offered bonuses.

Dual incentive schemes such as these are fairly radical. They raise the uncomfortable question of where the patient’s own responsibility lies in complying with their treatment. However, Australia’s epidemic of chronic diseases requires us to consider such radical measures where existing public health policies have failed.

While Australian health policy seems stuck in a rut of defending the status quo, a quiet revolution is taking place in the US. The lessons from current experimentation in Obamacare and beyond should inform our own policies to address chronic disease needs through payment reform.