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This is MORNING EDITION from NPR News. I'm Ari Shapiro.

RENEE MONTAGNE, host:

And I'm Renee Montagne. Good morning.

In the health care debate, many agree that the payment system for doctors and hospitals is not working well. They're compensated for each procedure they perform, giving them a perverse incentive to perform more procedures. Yet that system known as fee-for-service prevails nationwide. As we heard yesterday, the health care bills before Congress may do little to change that.

Today, NPR's David Welna looks at a new approach taking place in Minnesota.

DAVID WELNA: Watching health care costs soar has David Tilford increasingly worried. As president and CEO of Medica, Minnesota's second-biggest health insurer, Tilford fears medical-expense inflation is too much a burden on employers, who are Medica's main customers.

Mr. DAVID TILFORD (President and CEO, Medica): And some employers, especially on the smaller end, are dropping coverage altogether, because it's simply become unaffordable. So we had an obligation to do something. We couldn't simply sit idly by while our customers were struggling the way they were.

WELNA: So about a year and a half ago, Tilford met for drinks with Mark Eustis. Up till then, the two men were adversaries. Tilford's firm, Medica, was paying ever-higher bills on claims from Fairview Health Services, the not-for-profit that Eustis heads. It has seven hospitals and 49 clinics. Eustis says he was tired of trying to defend a broken system and wanted to do something different.

Mr. MARK EUSTIS (President and CEO, Fairview Health Services): But recognize if you do something different in today's reimbursement world, you'll generate less funds, because we're in a fee-for-service world that actually pays you to do more. If you really manage utilization appropriately, if you try to reduce costs, be more efficient, more effective, you get paid less.

WELNA: So Eustis and Tilford struck a deal. The insurance company agreed to provide an undisclosed amount of money to help Fairview, Minnesota's second-largest health care provider, move from fee-for-service billing to a system based on fixed payments. Tilford says it was by no means a gift to Fairview.

Mr. TILFORD: I was very clear that we would make investments, and that those investments should produce changes in the way care was delivered.

WELNA: Eustis, for his part, says Medica took a carrot-and-stick approach with Fairview.

Mr. EUSTIS: If we don't perform, you're going to get less. If you perform at a higher level, you'll be able to get additional payment.

WELNA: The idea, says Eustis, was to keep patients well by spending more on them when they're healthy, with the aim of reducing costly illness.

Mr. EUSTIS: It may sound simple, but getting physicians and practitioners to think about that versus just thinking about people when they're sick and generating production units is a huge, huge change.

(Soundbite of announcement)

Unidentified Woman: (Unintelligible)

WELNA: Fairview's clinic in Eagan, just south of Minneapolis, resembles most big health clinics. But this facility, with its 10 physicians and 12,000 patients, is known as the sandbox. It's where Fairview just this spring began to try a number of new approaches in patient care. One of its patients is a 43-year-old father of three who for fear of losing his job asked that only his first name be used in this report. Dr. Jamie Gaul sits down with him in the exam room.

Dr. JAMIE GAUL (Physician): So we're just going through your physical today, John.

Mr. JOHN: Yeah, I ran out of the Lipitor and I can't get another prescription.

Dr. GAUL: Okay.

WELNA: That's not the only reason John's come to see Dr. Gaul. He also complaints of constant chest pains, which he links to stress he has been feeling due to layoffs at his workplace. Later, Dr. Gaul says he's adopted a new approach for identifying such a patient's concerns. He calls it motivational interviewing - essentially letting the patient do most of the talking during an exam.

Dr. GAUL: I think if we can catch ourselves, so that we don't jump in with our own agenda too quickly, I think it really does help, and I think that overall the care ultimately is more effective.

WELNA: Were Dr. Gaul being paid by the number of patients he sees as most doctors are, it might not have been worth it for him to sit and listen at length to his patients. But Gaul and all the other doctors at the Eagan clinic are now on salaries and feel more free to consult with each other about patients. Nurse practitioner Val Overton helped oversee the redesign of care at the clinic.

Ms. VAL OVERTON (Nurse Practitioner): It's kind of interesting that Washington is reforming health care, when they're not the ones in the room with the patient, and that's really what this project is about, letting the people in the room with the patient reform health care.

WELNA: One new goal for Lynn Fiscus, the Eagan clinic's medical director, is to get more patients to cancer screenings.

Dr. LYNN FISCUS (Medical Director, Eagan Clinic): Under the old model, it didn't matter whether I did a good job counseling them or talking to them about colon cancer risk. We were all reimbursed the same, just for that face-to-face visit. Under this new model, we're accountable for how many of our patients are up to date on their colonoscopies, how many have had their mammograms. It's really a different way of looking at it.

WELNA: It's still too soon to know whether the more collaborative, wellness-oriented approach is more cost-effective at Fairview's Eagan clinic. It's goal this year is to cut costs by 20 percent, while increasing the number of patients by 50 percent. Physician Dave Yehl says he has no idea whether he gets a bonus if that happens.

Dr. DAVE YEHL (Physician): This is a faith-based initiative where basically we're kind of taking it on faith that our higher-ups will kind of kick in that incentive once we've established that we have good ways of making quality care.

WELNA: And if they do, the Medica-Fairview venture could be a model for revamping fee-for-service health care.

David Welna, NPR News.

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