Matching Price to Performance
Matthews believes one cannot assume that the insurers are
trustworthy, particularly when it comes to value contracts.
The terms insurers offer on value contracts are, in Matthews’
words, “terrible, because they provide groups with only a tiny
portion of the improvements that they make in reducing the
total cost of care.” Further, sensing provider anxiety about
value agreements, insurers hide the paltry rewards they offer
by proposing that the contracts have no downside risk. Careful
analysis would show that they don’t have much or any upside
opportunity either. Often enough, the results are contract
terms in which the insurance company will realize $20 per
member per month (pmpm) worth of savings, but only provide
$2.98 pmpm to the group or system.
Planning Is Essential
Another common mistake is that some groups incur significant costs for improvements before they have a contract that
will pay for improvement. This type of behavior lends truth to
Matthews’ argument that many groups lack a well-thought-out, written, or commonly agreed-upon value strategy or plan
and are, basically, winging it.
As Matthews put it, “Ask what your organization will do if you’re
the dog that catches the bus. You get a good value contract and
the big exposure to the total cost of care. What are you going
to do that’s going to make your organization successful?
“In many instances, we’re not appreciating value as a new
ballgame,” added Matthews. “A lot of groups make this change
and this little tweak here or there to their old model. That is
not going to get us to real, meaningful reductions in the total
cost of care. You need a runway that allows and supports
continuous improvement over a long period of time. One-shot
improvements are fabulous if they work, but they’re still one-
shot deals, and you’re going to have to have more than that to
win in real value agreements.”
For groups, it’s important to think about the endgame and
the fact that it is going to cost the organization money—both
upfront monies and ongoing operating monies—to bring down
the total cost of care and improve quality.
Eliminating Waste versus
Addressing the Disease Burden
Matthews distinguishes two separate, important pathways to
lower the total cost of care: the systematic identification and
elimination of waste, and the management of the health/disease
burden placed on the already-covered population of patients.
When it comes to identifying and eliminating wasteful
spending, it is a matter of identifying and eliminating bad hab-
its that developed during the days when we were paid fees and
when the total cost of care was not our problem. These habits
range from prescribing expensive medicines when they are
not necessary, diagnostic studies that are ultimately unwar-
ranted, unnecessary ER utilization, and a lack of coordination
from site-to-site or specialty-to-specialty, among many other
examples. And while eliminating such wasteful spending is an
important start to lowering costs, it is typically not sufficient
enough to achieve total cost-of-care reductions over the long
term or to a sufficiently large extent.
While eliminating waste is good, it isn’t enough. Matthews
proposes that the distinguishing characteristic of the organizations that are really successful in value are those that
manage their patients’ health and disease burden most
successfully. The Commonwealth Fund and others report
that 75% of total health spending is for chronic diseases. To
be successful, an organization must be able “to crush” the
chronic diseases in their population.
Matthews was critical of many methods for quality and cost
improvement in use today. In many instances, groups or health
systems run analytics, come up with lists of patients who are
at great risk due to their health status, and then turn these
lists over to care or case managers. Care and case managers
cost between $50,000 and $100,000 per year with benefits,
depending upon their credentials.
The “old school” way to improve quality involves retroactively
inspecting and repairing prior work to find errors and then fixing the errors. Rework is inefficient and expensive, and winds
up failing in the long term anyway.
“In new school quality theory,” said Matthews, “you want
to get the work done right the first time. Your goal, which is
never fully achievable, is, ‘Let’s get it right all the time and
we won’t have a list of things we screwed up when we run the
“We can’t spend $1 million to save $800,000.
That’s just not a sustainable model.”