Paying for low value

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The hottest catchphrase in health care circles these days is “pay for value.”
That means, instead of simply paying doctors, hospitals, nurses and pharmacists to do more stuff to us and give us more stuff, health insurance plans will pay them to actually make us healthy.
That’s a good goal.
But a new study shows that Indiana has farther to go than all but one of the states to actually reach it.
The study, put out by the Health Policy Institute of Ohio, does what someone should have done a long time ago: ranked all 50 states based on a combination of both health status and cost of health care.
The Hoosier state ranked 49th among the 50 states. Only West Virginia ranked worse.
It would be easy to dismiss this as some sort of Buckeye sabotage. But the Health Policy Institute didn’t spare Ohio—it ranked 47th.
Not surprisingly, Indiana scored poorly on health status, ranking 43rd among all states. The Health Policy Institute ranked states on a bevy of measures, from rates of diabetes and heart disease to poor dental health to infant mortality and suicide.
That poor health status is surely a reason why Indiana ranked even worse on health care spending: 47th out of 50.
However, there are a couple of signs that the costs of health care in Indiana are higher than can be explained merely by Hoosiers’ poor health.
The federal Medicare program for seniors, which tries to adjust its pre-set payments to account for different levels of wages around the country, still pays nearly 4 percent more per Medicare beneficiary in Indiana than the national median, according to 2012 data standardized across states by the Commonwealth Fund.
But the real differences are in what private insurance companies spend for working-age Hoosiers. Commercial reimbursement to health care providers in 2009, according to data from Thomson Reuters, was 20 percent higher across Indiana than in the median hospital referral region, according to a Commonwealth Fund analysis.
Insurance plans are spending $3,963 per year on working-age Hoosiers, compared with just more than $3,314 in the median hospital region.
Those figures are from 2009, and I’ve cited them before. I used them in a 2011 story about Anderson, Indiana, which had the highest per-person spending of any city in the nation.
Also, these figures were used by other researchers to show that hospital inpatient prices in Indianapolis were 88 percent higher than Medicare’s rates and that hospital outpatient prices were 264 percent higher than Medicare rates. That study found that these high prices are not just restricted to Indianapolis, because Kokomo, Indiana, was second-highest among a group of 13 cities analyzed.
The interesting thing about the combination of data in the Health Policy Institute’s report is that it allows a rough calculation of exactly how much Hoosiers are spending beyond what their poor health would suggest they need to spend.

If poorer health causes Medicare to pay 4 percent more to take care of Hoosiers, and assuming that working-age Hoosiers are roughly in the same poor health compared with their peers as older Hoosiers are, what are private health insurers doing with the other 16 percentage points in extra money their spending?
Answer: They were using it to keep as many hospitals and doctors as possible in their networks, so they could promote broad-access networks to employers.
Hoosier employers have for decades insisted on this. And now we know the cost of it: about $650 for all 4 million working-age Hoosiers. That’s roughly $2.6 billion a year.
As I said, when it comes to paying for value, Indiana has a long way to go.

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