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Senate Insurance Tax May Imperil Payment Experiments

Highmark, a Blues plan in western Pennsylvania that has often been a trendsetter, is said to be negotiating with two healthcare systems about paying a flat rate for certain types of services. These might be either disease management services for people with chronic diseases or bundled payments for complete medical care of a patient population.

Highmark's discussions with the Heritage Valley Health System and the Meadville Medical Center echo proposals in the health reform legislation now being debated in Congress. They also sound similar to the "alternative quality contract" that Blue Cross Blue Shield of Massachusetts has offered to large, integrated delivery systems in the Boston area. While the Massachusetts Blues has actually made deals with a couple of healthcare organizations, Highmark views its current moves as experimental. But the insurer will move more aggressively in this direction over the next five years, a Highmark representative said.

Highmark's thinking is in the mainstream of health policy. A new paper from the Center for Studying Health System Change (CSHSC) and Mathematica Policy Research, for example, explores key policy considerations involved in designing and implementing an episode-based payment system that would bundle payment for some or all services delivered to a patient for an episode of care. Such an episodic payment for a treating a heart attack might begin with the onset of symptoms and would include physician and ER services, hospitalization, and post-acute and rehabilitation services.

The challenge in trying to design a payment system around this principle, the researchers note, is to figure out how to identify which providers are involved in an episode of care and how to apportion payment among them. Also, it is not going to be easy to make the transition from our current fragmented delivery system to one in which providers cooperate in episodes of care. As CSHSC points out:

"In today's fragmented delivery system and payment environment, individual providers have little financial incentive to step out of their silos to coordinate care across a patient's conditions and care settings and limited ability to influence other providers' behavior. The quandary for policy makers is how to motivate providers to reconfigure their practice arrangements and care processes to produce more efficient and coordinated care without setting many of them up for failure with a rapid transition to full capitation."

Meanwhile, in a recent post on the Health Affairs blog, David Balto points to some provisions in the Senate reform bill that are unfavorable to integrated delivery systems that include an insurance component, such as Kaiser Permanente and Intermountain Healthcare. The $70 billion insurance tax included in the bill, he says, would fall disproportionately on these IDSs, while favoring large insurance companies. The reason, he says, is that the tax does not apply to these insurers' ASO business, which consists of administering the self-insured plans of big corporations. Also exempt are Medigap plans, another lucrative area for the insurance companies. As a result, he says, "the five largest non-profit insurers will bear only about 20 percent of this massive tax."

Here's how the dots connect: If federal tax policy punishes integrated delivery systems that are in the vanguard of change, there will be fewer healthcare organizations capable of transforming how care is financed and delivered.