Many people I’ve talked to about health reform consider the insurance industry to be the evil empire — the stakeholder clinging onto the status quo for its own lucrative benefit. But nothing is black and white, and I didn’t want put off getting the insurance industry’s side of things any longer. Since I’ve always had a good relationship with Andrew Dreyfus — VP of Health Services for Blue Cross Blue Shield of Massachusetts — I thought I’d start with him.

Dreyfus is very personable and smart, with a long history in various parts of the health care system, and frankly, he just doesn’t come off as an evil emperor. (He used to be spokesman for the Mass Hospital Association, and later, president of the Blue Cross Foundation, which once sponsored me on a week-long journalism fellowship.)
But obviously these issues go beyond personality — so here’s how he sees health reform in Massachusetts so far, and how his insurance company (a nonprofit, he points out) fits in.

He believes the state has done a great job expanding coverage, but — like most observers — he’s less upbeat about the part where it controls costs. Massachusetts made a conscious decision to give lots more people coverage without figuring out how it would pay for this coverage in the long run, and frankly, Dreyfus says that’s the only way this would’ve gone ahead. (He worked in the Dukakis administration during a previous attempt at health reform.)

But now the rubber meets the road, since the economy is only creating more need, and it’s certainly not slowing costs (currently increasing by double-digits for health care). Why, I asked him, do health costs go up so much faster than inflation? Because more and more people are relying on higher-tech medical care that is expensive, without necessarily leading to better results. Because in order to keep making money, hospitals and providers HAVE to order more expensive tests and procedures, since that’s how the payment system works. And Massachusetts frankly has more expensive care than most other places in the country, because it’s such a medical/technical mecca.

Dreyfus is on the state “payment reform” commission to look into changing the way insurance/Medicaid payments are made, but that’s a very slow process. But what he’s most excited by is what Blue Cross is doing on its own to control costs and, he says, improve health care quality.

He is one of the creators of what’s called an Alternative Quality Contract, or AQC. Currently, most insurers and government programs use a traditional “fee for service” model that rewards specialist care, hospitalizations, high tech procedures and medical tests — at the expense of basic primary care and preventative care. As a result, providers (doctors, hospitals, clinics) have an incentive to order more costly services, and they DON’T have an incentive to talk to patients about longterm health habits, to create relationships with patients, and to promote illness or injury preventation. This incentive system both drives costs up, and drives health indicators down. So what Blue Cross is doing with a select group of doctor’s groups (including Hampden Physicians Group in WMass) is entering a payment contract that provides a set amount of money to keep patients healthy — the doctors can choose how to spread the money around — and bonuses at the end of the year if in fact patients DO stay healthy. That way, he says, the emphasis is on health, not sickness; on prevention, not intervention.

This sounds like a very innovative approach, but it also raises a number of questions. How do you make sure doctors don’t only select patients they know are healthy, as a way to make sure they keep the lion share of the contract money? Well, he says — by offering more money in the initial contract for patients that come with high risk factors or existing illness. But how do you make sure doctors don’t fail to order NECESSARY tests or hospitalizations, because now they have an incentive to keep care to a minimum. Well, he says, because they will be measuring how healthy patients are at the end of the year, and if in fact they are getting sicker, then clearly they have not been getting the care they need, and the doctors won’t get their bonuses. But he did say that this approach will require a certain patience on the part of consumers, who may not get the same convenience, or the same degree of care, that they’re used to, or that they want. But if the system works, they will still get the care they need. (Isn’t that a Rolling Stones song?)

For doctors that enter this AQC, the insurer would promise a slower rate in premium increase from year to year (lower than the current 10 percent). Over time, the hope is that Blue Cross can keep premiums lower and thereby attract more business from employers and individuals. The AQC is still in a pilot stage, Dreyfus says, but he believes it’s an approach that could slow the rate of health care costs (and he was careful not to promise much more than that.) Why should other insurers follow BC’s example? 

Because this may be the only way to forestall a drastic government intervention.
That, of course, begs the question — would that be so bad? Perhaps government should play a stronger regulatory role in health insurance? To which Dreyfus replied that, certainly, whatever happens on the national stage, government is likely to play a stronger role, but he says even government needs to look at these sorts of innovative payment reforms.

We also talked about the prospect of a single-payer system — a system that many of the aforementioned skeptics believe would be the best way to cut costs, primarily by cutting OUT the insurance companies. To this, Dreyfus insists that insurance companies actually only add a small amount to the overall costs of health care. Perhaps 10 percent in administrative overhead, he says. And for that reason, he believes the real cost-cutting has to occur on the medical side of things, not the administrative side.

It’s worth noting that the week before our interview, Blue Cross announced it was enacting major cuts in its executive and employee pay, in anticipation of a loss of revenue from declining membership and investment income. We ran out of time for me to get into this issue.