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Are Medical Costs Dropping Under HMSA's New Doctor Payment Plan?


Across the country, health care spending is through the roof reaching $3.5 trillion in 2017. Hawai?i’s largest insurer HMSA says the way doctors have been paid is part of the problem. 

Doctors have traditionally been reimbursed for the services they provide under a model known as “fee-for-service.” The physician provides a service like an annual check-up and HMSA pays the doctor.

But that's changed. HMSA now pre-pays primary care doctors with a capped amount per patient. The new system has been in place for two years, and the jury is still out on whether it's met its goal of lowering medical costs and improving the quality of care. 

Meanwhile, some primary care doctors say they are struggling financially under the latest changes and critics believe as physicians leave the state or give up their practices that it is contributing to Hawai?i's doctor shortage.

"There’s nothing inherently wrong with fee-for-service but it doesn’t encourage physicians to transform their practices to address health care costs," said Dr. Gerard Livaudias, vice president of Hawai?i Health Partners, which helps doctors deal with administrative and regulatory requirements. "If anything, they’re just encouraged to provide even more care when it may not actually improve outcomes."

Doctors have to meet quality measures set by HMSA for every patient. They receive bonuses for improvements and can share in the savings if they cut costs.

"It puts the right incentives and opportunities in front of the physicians to drive the kind of changes that we’re all wanting to control the cost of care," Livaudias said.

Dr. Steve Kemble, a local health policy expert and psychiatrist, is skeptical of the incentives.

"The doctors and hospitals make more money if they deliver less care and keep more of what they got," Kemble said. "So that now the doctors and hospitals are functioning as an insurance company bearing insurance risk and they have the incentive to restrict care that the insurance company used to have."

Kemble doesn’t buy the argument that excessive primary care services are causing high health care costs.

"We have fewer doctor visits per capita and fewer hospital days per capita than almost any other industrialized country, and yet our costs are twice what theirs are," he said. "So it can’t be a problem of overutilization due to fee-for-service. There must be something else to explain high U.S. health care costs."  

HMSA says it’s too early to tell whether its new payment system has reduced health care costs over the past two years it's been in place.

That uncertainy is expected, said Tetine Sentel, University of Hawai?i M?noa health policy professor.

"A lot of these changes are happening towards goals that are very broad and ambitious and will be manifested over time. And I think it’s hard to see some of the long-term benefits in the short-term and that is really hard across the board," she said.

Sentell believes HMSA’s new payment system is a necessary part of the conversation when it comes to improving health care in Hawai?i.   

"I think HMSA has tremendous market power to try to shift the conversation into more public health domains. But you know the pains the providers are feeling about being in the middle of this are real and we certainly don?t want to lose our providers," she said.

Sentell hopes stakeholders can work together to resolve any concerns, but the challenge she said is working out the kinks as the system develops. 

TOMORROW: We look at who's monitoring the impacts of HMSA's new payment system as it unfolds and waht that looks like. 

Kuʻuwehi Hiraishi is a general assignment reporter at Hawaiʻi Public Radio. Her commitment to her Native Hawaiian community and her fluency in ʻōlelo Hawaiʻi has led her to build a de facto ʻōiwi beat at the news station. Send your story ideas to her at
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