The New York Times this morning (10/1/12) featured an editorial entitled “How Insurers Can Help” describing the efforts of Massachusetts Blue Cross to change how they pay existing providers to encourage improved quality and lower spending. Instead of simply paying doctors and hospitals per visit or procedure, the new Alternative Quality Contract (AQC) as it is called sets a fixed budget target for providers, and they are rewarded or penalized financially for going below or above it respectively. To try to prevent underuse of services, there are 64 quality metrics which also carry a bonus. The goal is to cut the rate of healthcare spending growth in half, and The Times reports that initial data suggests that groups with the new contract spent 1.9 percent less on average than groups that did not have such contracts in the fist year, and 3.3 percent less in the second year, although increased upfront spending on technology and generous startup bonuses meant net costs were still higher than for other groups.

While any attempt to reduce health care costs should be applauded, I believe efforts such as this are woefully inadequate to truly get us to where we need to go. A recent Institute of Medicine report estimated that over $750 billion dollars or over 30% of all health care spending is waste. I believe at least our goal ought to be to reduce half the waste in the system, or a 15% net drop in total health care costs, not to reduce the rate of growth by half. We work with several unions and employers who have not been able to increase wages for many years, because all their increased income is going to costlier health care premiums. It is morally unacceptable that minimum wage dishwashers and maids are foregoing raises so that the bloated health care system can continue to grow. We need to take money out of health care and put it back in people pockets; it is not clear why we are celebrating such low aspirations as with the AQC.

Perhaps the problem is that insurers like Blue Cross are exclusively trying to get existing practices to improve. While this should certainly be part of the strategy, what they are missing is also trying to encourage new entrants like ourselves who are able to be much more innovative and disruptive in our delivery model, and have the potential for achieving the real goal of net cost savings, and will be able to pressure the incumbents to go beyond the low expectations. What caused the airline industry to dramatically improve service and costs was not exhortations to United and American, but the emergence of new players like Southwest Airlines. If insurers really want to help, they need to drastically raise their expectations, and be willing to move out of their comfort zone working with the existing providers and truly catalyze innovation in the system.