Paying for Health, not Healthcare

As healthcare spending nears $4 trillion annually, political and economic questions regarding what should be done have consumed the 2020 democratic candidates. Some candidates such as Elizabeth Warren and Bernie Sanders have called for a complete dissolution of private insurance companies in exchange for a government-run Medicare-for-all plan. I spoke with Dr. Patrick Conway, the former CEO of Blue Cross Blue Shield of North Carolina and former Chief Medical Officer for the US Centers for Medicare and Medicaid Services, about ways that we can keep our current system while reducing overall healthcare costs. Conway’s work as the Chief Medical Officer included overseeing a $1.5 billion-dollar annual budget, and after becoming the CEO of Blue Cross Blue Shield of North Carolina, he oversaw healthcare delivery for 4 million Americans. It is incredibly challenging to find the “right answer” when it comes to healthcare, and I believe it’s important to seek out numerous perspectives in an attempt to determine our options. Insurance companies are often the center of the debate around healthcare, which is why I sought to speak with Dr. Conway; however, my goal is to present more than just one perspective, all of which share the common goal of reducing healthcare costs in America.

Throughout our conversation, Dr. Conway stressed the importance of “buying health, not just healthcare services,” meaning that, too often, we utilize unnecessary healthcare services that do not actually improve health. This is supported by numerous studies, which have said that unnecessary healthcare services account for over $200 billion dollars. Conway also cites the fact that US drug prices have increased at a faster rate than other developed nations, due in part, in his opinion, to the fact that many other developed nations utilize value-based drug pricing. Value-based drug pricing allows for drugs to be priced based on patient health outcomes after using a particular drug, and agreements between manufacturers and purchasers can even include providing refunds for adverse health outcomes caused by a drug. The current US system does not embrace a value-based system; instead, Medicare reimburses hospitals for drugs based on the Average Sales Price of a drug on the market plus 4.3%. Some say that this encourages drug companies to drive prices up as they know Medicare will continue paying for whatever the average price is, regardless of the drug’s efficacy.

Conway also discussed a fundamental issue with our healthcare system, which is the need for greater investment in preventative medicine. The CDC actually estimates that 75% of all healthcare spending could be avoided through preventative care, which is why patients should not only have access to free preventative care (a stipulation under the Affordable Care Act), but they should be encouraged and possibly incentivized to utilize this care. Greater preventative care for chronic diseases would not only directly reduce overall healthcare costs, but it would also prevent the estimated economic output loss of $260 billion due to patients being unable to work because of their disease.

As the director of the Center for Clinical Standards and Quality, Dr. Conway worked to implement MACRA (Medicare Access and CHIP Reauthorization Act of 2015), which is beginning to fundamentally change the way doctors are paid for treating patients with Medicare. Under MACRA, alternative payment models have been created in order to link payment for a provider to the quality of the care provided. Right now, approximately 90% of providers are paid for on a fee-for-service basis, meaning that medical services are paid for without regard to whether the service actually helped the patient or not. This means that providers are paid based on the quantity of care provided rather than quality. Alternative payment models aim to move away from fee-for-service by rewarding providers for performing procedures that improve the health of patients and penalizing those who conduct procedures that do not improve patient outcomes. Payment models are classified into different categories, with fee-for-service being category 1. The category 2 model makes the first step towards tying quality to compensation by incentivizing hospitals to report their data on quality of care. Providers can also receive benefits for more positive overall statistics, such as a reduction in number of hospital-acquired infections.

Dr. Conway believes that categories 3 and 4 create the biggest impact on patient care. Under the guidelines of these categories, payments involve two-sided risk, meaning that based on certain quality measures and patient outcomes, a provider’s pay may be increased or decreased. For example, providers in a hospital may receive bonuses for reducing hemoglobin A1c levels in their diabetic patients over a certain period of time. In theory, this incentivizes hospitals to do whatever they can to improve quality of care. Category 4 also includes bundled payment, which is a single payment for a particular episode of service. For example, when you go to a surgeon for a knee replacement, the final bill will state that the fee for the surgery itself is separate from the fee for the anesthesia used, even though the anesthesia is necessary for the surgery to take place. In a bundled payment model, all services needed for a specific operation are “bundled” into one price. In theory, this model reduces unnecessary care by encouraging providers to utilize resources efficiently and effectively because their compensation stays the same for a particular procedure, regardless of what additional resources are used. Conway believes that moving hospitals away from categories 1 and 2 into categories 3 and 4 will help in reducing costs of care and improving quality.

I also asked Dr. Conway about the plans proposed by some of the democratic presidential candidates. In terms of Medicare-for-all, Conway believes that a traditional Medicare-for-all plan would not necessarily work. Right now, when a doctor bills Medicare for a procedure, Medicare pays for it with little regard to whether or not the procedure was actually necessary. As Conway says, “People will get care, but from a cost-control standpoint, traditional Medicare-for-all is not a high-functioning system,” which is why the system is actually set to go bankrupt in 2026. Conway believes that private insurance companies are important here because they are able to actually manage appropriate care and control costs. A more legitimate policy conversation, in his opinion, involves Medicare Advantage, which is a public-private partnership system in which the public pays for the system, but private insurance companies manage the care provided.

From a bird’s-eye view, value-based care and bundled payments appear to be part of the “answer” to our nation’s rising healthcare costs. However, as we dive down into these issues, the answer is not so clear. Last year, researchers at Harvard Medical School found that the value-based care system implemented by the government has not only failed to improve quality of care, but instead may have increased healthcare disparities. This may be due to doctors being less encouraged to see sicker patients who are likely to bring down quality scores, which will ultimately increase physician compensation. Refusing to see sicker patients or even refusing to try out a treatment that may not result in greater compensation can lead to increased health disparities, exactly how the Harvard researchers described. In terms of bundled payments, researchers from the Agency for Healthcare Research and Quality looked at 58 studies on bundled payments and concluded that there is very weak evidence showing that bundled care actually reduces costs. It is critical to note how many of the policies described earlier work very well in theory; however, in a practical sense, they may cause physicians to play, what some call, “quality games,” in order to avoid reductions in their compensation. What is agreed upon, however, by researchers, policy-makers, and providers is that preventative medicine must be furthered. Additionally, we must continue to test out different models of care delivery so that we can create a cost-efficient, high-quality healthcare system for the American people.

I spoke with Dr. Patrick Conway, the former CEO of Blue Cross Blue Shield NC, about how we can reduce healthcare spending in the US


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3 thoughts on “Paying for Health, not Healthcare

  1. I would go one step further than preventive care. There needs to be an emphasis on life style to include diet exercise, weight management, etc. To me, preventive care just looks at test results that give early warning, a good outcome, but without recommendations to make the necessary changes for healthy living. The financial incentives to make efforts to intervene in the life of v the patient with life style education is limited to nonexistent. If the provider spends time on those efforts it’s at his own cost and reduces opportunities to do the things that will be compensated.
    It seems to me that the emphasis for implementation of systems intended to reduce costs focus on the major hospitals instead of the doctor. As a retired hospital executive I have found it difficult for the hospital to change behavior of the doctors. It’s easy to push the required change to hospitals using financial incentives and disincentives as motivation but it isn’t highly effective.

    Liked by 1 person

    1. I completely agree with you that proper diet, exercise, etc are critical in reducing costs, and I should have mentioned this in the article. I think it is a very sound idea to incentivize doctors to spend time discussing lifestyle education with patients. Thank you so much for your input here, Mr. McLendon! I see exactly what you are saying and greatly respect your expertise in hospital administration.


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