Value-Based Health Plans: Healing Medicine?

Our medical costs are out of control. Some local companies are trying value-based health plans. Are they the answer?

Sabrina McKinney faced an important decision two years ago. 

It was Boeing’s annual open enrollment period, when employees choose a health plan for the following year. McKinney, now in her 39th year with the company, chose something new: a “value-based” health plan. It meant a small monthly health insurance deduction from her paycheck and access to an extensive network of primary care providers and specialists.  

Because she has several chronic conditions—high blood pressure and migraines among them—McKinney found the network of specialists attractive. She also liked the plan’s emphasis on staying well, rather than being treated when sick. “I’m not disappointed with anything about it,” McKinney says. “I get reminders to have my yearly mammogram, or a colonoscopy, or blood work, so you don’t forget them. And it’s not just one—you keep getting [reminders] until you schedule the test or visit.”

As health care costs rise, employers are hunting for ways to contain costs while still providing a robust health care package. Some are experimenting with what’s known as a “value-based” plan, in which providers are paid for keeping people healthy, not for the volume of patients they see or per procedure (known as fee for service). 

“The bottom line was we wanted to offer employees an option that improved health and productivity,” says Greg Marchand, Boeing’s director of benefits policy and strategy. And the price point seemed more affordable for employees and the company alike.

Under the value-based plan, participants pay nothing to see network primary care providers. Generic prescription drugs are covered at 100 percent. And there are no copayments or deductibles. 

This is a big shift in the way health care is paid for. Most doctors and hospitals bill a patient’s insurance on a fee-for-service basis—for each procedure, test, exam and so on. The system doesn’t keep people as healthy as it should and often leads to unnecessary, even harmful, care: ordering antibiotics for runny noses or MRIs for ordinary back pain, or having needless surgery that results in complications.

With value-added care, providers are paid for reducing unnecessary care and keeping people healthy. 

Robert Mecklenburg, M.D., medical director of the Center for Health Care Solutions at Virginia Mason and a member of the Dr. Robert Bree Collaborative (see sidebar page 76), believes that it’s imperative to move to a value-based health system like Boeing’s. “The delivery, the purchasing and the payment system [for health care] has been running on vapors for decades,” he says. “We are in crisis mode now. The system as we know it is unsustainable and unaffordable.”

Now, major companies, public employers, insurers and medical providers in Washington state are working to change that in an effort unmatched anywhere in the nation, focusing on value-based purchasing.

Boeing’s innovative plan, which began in 2014, is offered through one of two accountable care organizations (ACO), UW Medicine and Providence Health & Services. Boeing pays these ACOs a fixed amount to cover employees based on their claims histories. The medical systems, in turn, agree to handle all the patients’ medical needs through an ACO of hospitals and physicians’ groups. The ACOs are required to meet quality and patient-satisfaction targets. If the ACO meets the targets at a lower cost than expected, it shares in the savings; if expenses are higher, it swallows some of the costs. Consequently, the health care providers have strong incentive to come up with ways to deliver better-quality health care at a lower cost.

Early this year, the Washington State Health Care Authority (HCA) began offering members of its Public Employee Benefits Board program a similar plan through UW Medicine and a network of providers that includes Virginia Mason and Overlake Hospital Medical Center. So far, more than 10,000 employees have enrolled, says Nathan Johnson, HCA chief policy officer.


Some changes adopted by value-based plans are driven by Medicare, which pays many of the nation’s health care bills. Starting in 2017, physicians who treat Medicare patients will be monitored on a range of measures, including quality of care and the use of technology to communicate with patients and coordinate care. In 2019, physicians will begin receiving bonus payments or penalties based on their 2017 performance data.

Accordingly, Washington’s largest medical systems are seeking to transform themselves so they can meet quality standards while also cutting costs.

“We are lucky in Washington to have delivery systems that get it,” says Don Antonucci, president of Regence BlueShield. “They understand that [value-based purchasing] just makes sense.”

UW Medicine and Providence are coming up with better ways to monitor and improve client health. Providence created a “population health” division, and invests in new technologies to link its far-flung facilities so that, for example, emergency room staff can immediately know who’s on a particular patient’s primary care team and arrange for quick follow-up care that might avoid a costly hospital visit, says Linda Marzano, CEO of Pacific Medical Centers, now part of Renton-based Providence. 

The two medical systems also have been hiring new staff, care management nurses, clinical pharmacists and other nontraditional providers who can help manage high-cost, chronically ill patients. Under the old fee-for-service system, hospitals are paid for every test, so there’s little incentive to help patients manage their conditions.

The value-based contracts have also made UW Medicine more disciplined about new technologies and treatments. “In the past, when a new technology was available, we became the testing ground for it,” says Carlos Pellegrini, UW Medicine’s chief medical officer. “There was more of a public willingness to cover that cost.”

Today, UW Medicine takes a scientific approach that includes mechanisms to predict the overall costs of new treatments and their effects on patients. In the past, a surgical procedure to deal with acid reflux might have been judged by a patient’s score on a follow-up medical test. Today, that assessment also includes whether the operation improved the patient’s quality of life—by, say, reducing pain or helping the person get back to work.


Transforming health care isn’t an easy task. Along with innovations, it will also require a major change in health care culture. Integrating a patient’s care across multiple hospitals and doctors’ groups, for example, requires physicians to work together, and that’s not as easy as it sounds. 

“A physician’s training is about diagnosis. They learn to make decisions,” says Leo Greenawalt, a former CEO of the Washington State Hospital Association (WSHA) and Group Health trustee. “But in a team setting, dealing with complex issues, you’ll get 100 different opinions.” A culture that encourages all those team members to work together can take years to develop, he warns. 

Claudia Sanders, senior vice president of policy development for WSHA, notes another challenge. The state HCA’s 155-page contract with health care providers details performance metrics the provider must meet on a range of areas, from depression to medication management. In most cases, providers must invest up front so their information technology systems can track a diabetes patient’s path through a fragmented medical system, from primary care doctor to orthopedist to eye doctor. 

And it may be years before the new systems actually cut costs. In the meantime, hospital systems must serve two payment systems.

“We [primary care doctors] need to see patients just as fast while trying to do a whole lot more, and still document and bill to support fee for service,” says Dr. Jorge Garcia, associate director of the residency program at Swedish FamilyMedicine. “That’s contributing to high levels of burnout and early retirement just when the demand for primary care is rising.”

Switching to value-based health care also requires consumers to learn that more care isn’t always better care, and that sometimes the best person to see isn’t necessarily a doctor. They may need to embrace new concepts, such as group appointments during which those with the same chronic condition, such as diabetes, learn how to manage their condition. 


Over the long term, the benefit of moving to value-based care is likely to be significant, but the journey could be rocky. “It’s a gutsy move [by the state] to be the first mover,” says Nancy Giunto, executive director of the Washington Health Alliance. Most assume this system will cut costs, she notes, but it could take years before that happens.

It might happen more quickly than Giunto expects because of HCA, which spends $10 billion on health care annually and is pricing its value-based plans to attract participants. 

Enrollees who select the state’s value-added plan get a one-third discount on premiums, with no deductible for primary care. Lower premiums could help attract participants to the Boeing plan, which costs an employee about $360 a year less than standard health coverage. 

Many others are also looking at value-based plans. The Association of Washington Cities, which has a trust fund for 160 communities, is considering a new value-based benefit plan for city workers. Antonucci of Regence says he expects a half dozen or more self-insured companies to offer their employees ACO plans next year, with a larger number of midsize companies following in 2018.

The ultimate fate of these new plans may rest on the experience of patients like McKinney, who calls the switch to value-based health a “no-brainer.” 

She adds: “It’s awesome.” 

Healthier, happier employees like McKinney will be good for business. And that’s good for all of us, because we all ultimately pay the bills. 


Making Care Better: The Dr. Robert Bree Collaborative, named after the late University of Washington ultrasound pioneer and landmark legislation advocate, is a group of 22 public and private health care stakeholders appointed by the governor to identify specific ways to improve health care quality and affordability in Washington. Created in 2011 by the state legislature, it’s gaining nationwide attention for its studies of health care services with high variation in the way they’re delivered, that presents safety risks, or care that doesn’t lead to better outcomes such as bariatric (obesity) surgery, joint replacements, lower back pain treatment and prostate cancer screening. Why does hip replacement cost vary greatly? Why do identical procedures result in more readmissions at some hospitals and fewer in others? The Bree Collaborative ( is on the case. 

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