Reform Model

The promise of changes in healthcare.  

When the news media takes a five minute break from talking about the latest economic woes, they often turn their attention to healthcare. The smoldering dissatisfaction with the current healthcare system that all of us, patients, providers, and payers have felt for the past several years seems to have finally become less smoldering and more burning. Most people now agree that what we incorrectly refer to as our “healthcare system” (it is hardly a system, at least as I understand the definition of that word), is need of serious change. So, I thought the topic of changes in healthcare would make a great way to inaugurate this blog. Welcome to 98.6 degrees.

Those of you who saw or heard about the recent presidential press conference on healthcare will know that President Obama has promised healthcare reform this year. More important than this promise, however, is the (thus far symbolic) support of his proposal from forces that were aligned against “HillaryCare” in the 1990’s. This time, we might not have Harry and Louise to scare us away from change. Certainly, there will be opposing voices but they may well be drowned out by overwhelming support from employers, public officials, healthcare workers, advocacy groups, and just plain Americans who are tired of seeing themselves or their neighbors denied access to the best healthcare. Real change may not occur within a year but it almost certainly will come. The unanswered question is what form the change or changes will take. So, if you will grant me some “predictive license”; I would like to offer some thoughts regarding how things might change.

The Way We are Paid Will Change

The current formula for physician payment is, at its core, relatively simple. Oh, I know, you got your insurance company’s explanation of benefits for a recent medical treatment and you couldn’t determine how much it cost or who got paid what, so you’ll just have to trust me on this one. It works like this: We do “stuff” for patients and we get paid for each “thing” ( a surgery, a patient visit) we do, provided, of course, that the patient has insurance or pays our bill herself. To be sure there are some nuances to this payment method; physicians who perform procedures tend to be reimbursed better than those who do not and more complex care pays better, per episode, than less complex care. Variations aside, this payment system creates incentives for physicians to do “stuff”; the more “stuff” they do, the more money they make. So, while a reduction in payments for each episode of care can be legislatively mandated (and, in fact, absent congressional action, we face a 20% Medicare reduction in 2010), many people, including me, believe that this step would be largely ineffective in controlling healthcare costs. Why? It would be ineffective because the incentive to do “stuff” remains firmly in place. Physicians would find reasons; many of them justified, to do more of what they currently do in order to maintain their income.

So if reducing individual payments isn’t the answer, what might substantial payment reform look like?  No one knows for certain but our friends at the Centers for Medicare and Medicaid Services (CMS) have offered a more than subtle hint about one possible model. Late last year, CMS released a request for hospitals and physician groups to volunteer as “subjects” for an experimental payment scheme call the Acute Care Episode (ACE) Demonstration Project.

Under the terms of the ACE demonstration project, the entire reimbursement for both the providers and the facility for certain kinds of cardiac and orthopedic care would be fixed at a certain level, bundled, and paid to a combined physician/facility entity. While this does not directly change the incentive for doing “stuff”; the physician and the facility are still paid on a piece work basis for each episode of care, it does fix the government’s cost for say, a hip replacement and it forces the providers and the facility to work together to control the costs of care by doing only what is necessary and by minimizing complications. Facilities and providers that can provide the services less expensively can do very well under this model but those who cannot are going to lose money.

Fixed payments by federal payers are certainly nothing new; DRG payments to facilities have been in place for decades but what makes the ACE project truly extraordinary is the way that it allows providers and facilities to interact. One of the most consistent features of American law, as enacted by legislators and interpreted by jurists, has been a staunch support of competition. Healthcare has, heretofore, been no exception. In fact, several pieces of federal legislation constrain the relationship between providers and institutions to prevent either from behaving in an anti-competitive fashion. But at the ACE project demonstration sites, CMS has agreed to essentially suspend certain aspects of the anti-kickback regulations to allow hospitals to share savings with providers. Furthermore, CMS has stated that it will direct Medicare enrollees to ACE sites in their area; in essence creating preferred providers.

The implications of such a payment system are clear. First, providers of various types will need to be tightly aligned. Fragmented care will, I believe, be too inefficient to allow success under a global payment model. Likewise, providers and facilities will need to be aligned more closely than they have ever been. The highest risk under the ACE model falls squarely on the shoulders of the hospital but the provider directs virtually all of the care which produces that risk. This basically means that the providers and the facilities providing specific kinds of care must, out of necessity, work together to build well integrated service lines that hold both the doctors and the facility accountable for providing the highest quality and most efficient care. The old model of segmented and “siloed” care will fail under this model. OK, but what will keep everyone from just focusing on efficient care and the heck with quality? That is a great segue into the next post on 98.6 degrees. Stay tuned.