The shortcomings of the Fee For Service (FFS) model are widely known.
During the 1800s, the British empire shipped prisoners to newly formed penal colonies in Australia (technically, these were British prisoners, but that doesn’t make a catchy title). Ship captains were compensated for each prisoner who boarded the ship. The financial incentive ruled over decency, each captain stuffed as many prisoners on to the ship as it could handle. Of course, the prisoner survival rate lingered at a precarious 50%, while those who managed to survive the journey often arrived beaten, sick or starving.
Attempts were made to improve the survival rates, through what might be considered early wellness programs. Captains were mandated to bring citrus to combat scurvy, a 19th century wellness program. Doctors were required on each ship carrying prisoners, improved access ala concierge medicine. I’m sure someone may have proposed it’s the prisoners responsibility to survive the trip and they ought to engage in their own survival. Nevertheless, requiring lemons and limes and placing physicians on the ships proved equally ineffective.
In 1862, economist Edwin Chadwick suggested a change to the incentive structure. Ship captains were no longer compensated for each prisoner who boarded in England, but, instead, received payment for every living prisoner who got off the ship in Australia. The first pay for outcomes program in healthcare. The survival rate on ensuing trips jumped from 50% to 98%.
The moral of the story is that incentives matter.
- Primary care physicians are the ship captains of the 21st century.
- American patients are prisoners of the US healthcare system.
- Misaligned incentives are the root cause for what ails the system.
Christopher DeNoia is the Vice President of Business Development at Amplify Health, where this post originally appeared.
Filed Under: Physicians, THCB
Tagged: Chris Denoia, Fee-for-service, Incentives, Physicians, Value
Oct 10, 2013
For Medicare, this has been a summer of good and bad news. On one hand, the program’s costs continue to rise remarkably slowly. So far this fiscal year, they have gone up by only 2.7 percent in nominal terms, the Congressional Budget Office reports.
On the other hand, opposition to the Independent Payment Advisory Board — created as part of the Affordable Care Act — continues to mount. And opponents continue to mischaracterize the whole point of the board.
What they seem not to understand is that the board is needed mostly so that that Medicare can continue to encourage slower growth in costs.
One reason costs have been rising so slowly is that systems for paying hospitals and doctors are changing. We’re moving away from the old fee-for-service plan and toward paying for value in health care — and we’re making the shift more rapidly than expected.
Redesigning the payment system is a fundamentally different approach to containing costs. The old way was to simply slash the amounts that Medicare pays for services. And here is where the criticism of the Independent Payment Advisory Board becomes somewhat Orwellian.
The point of having such a board — and here I can perhaps speak with some authority, as I was present at the creation — is to create a process for tweaking our evolving payment system in response to incoming data and experience, a process that is more facile and dynamic than turning to Congress for legislation.
In particular, as Medicare experiments with accountable care organizations, bundled payments and other new strategies, the agency will inevitably need to make adjustments. Questions will come up, such as: How should the payments to doctors, hospitals and other providers be changed to reflect what is learned about the quality of care they provide? How much should the penalties or bonuses be? Is it better to have hospitals face all the costs associated with patient (as in an accountable care organization) or only the costs incurred during a specific episode of care (as in bundled payments)?
Continue reading “The Critics Are Wrong About IPAB”
Filed Under: OP-ED, THCB
Tagged: bundled payments, Costs, Fee-for-service, IPAB, Medicare, Payments, Peter Orszag, spending growth, The Affordable Care Act
Jul 31, 2013
Every day, 10,000 people in the U.S. celebrate their 65th birthday, making each one of these seniors eligible for Medicare. The very program that gives America’s seniors access to affordable health care will turn a youngish 48 on July 30, but in a biting irony, it could go bankrupt before reaching its 65th birthday.
We cannot wish away or ignore the reality that Medicare’s Part A trust fund — the portion that pays hospital claims — is currently projected to run out of money by 2026. The good news, however, is that it is possible to put Medicare on a sustainable path if we can surmount current political hurdles.
It is no secret that Washington is better known for what it is not doing than what it is doing these days. Partisan gridlock has proved to be an insurmountable impasse for potentially worthy legislative efforts. This is especially true when it comes to making the changes needed to sustain Medicare’s future, where Washington is truly making things much harder than they need to be.
Much of the current debate has focused on reforms that would only slightly defer Medicare’s pending insolvency, with the potential for mere cost-shifting. With many of those recommendations, political disagreement is so strong that an extremely limited chance exists to pass a compromise version. However, even if enacted, these reforms would only address the symptoms of Medicare’s condition rather than the underlying problem. The result would only help Medicare limp to its 65th birthday at best.
There is a much more meaningful reform out there that addresses the underlying problem, and, surprisingly, bipartisan consensus exists around the need to end the fee-for-service system in Medicare.
The current fee-for-service payment system compensates physicians and other health care providers for each service they deliver, such as an office visit, test or other procedure. While it is critical that providers be fairly compensated, Medicare’s fee-for-service structure contributes to inefficient care that is often disconnected with actual patient outcomes. It has accelerated the program’s financial imbalance with inflationary spending that has little or no connection to helping beneficiaries get healthier.
Continue reading “Can Medicare Reach Its 65th Birthday?”
Filed Under: THCB, The Business of Health Care
Tagged: Douglas Holtz-Eakin, Fee-for-service, Kenneth Thorpe, Medicare, Medicare Part A, Partnership for the Future of Medicare, Physician Payment Innovation Act, Physicians, Reimbursement
Jul 23, 2013
The Next Health Care calls for very different strategies and tool sets. Many systems are acting as if they read a manual on how to do it wrong. How many of these critical strategic and tactical mistakes is your system making?
So I was beta testing FutureSearch, this cool new Google add-on app I’m writing with a coder, and I found an article that I wrote in 2025. My first thought was, “Cool! It works!” My second thought was, “I’m still working at the age of 75?” It was only then that I focused on the title of the article: “Fail: The 16 Steps by Which Hospitals Failed in the Post-ACA Risk Environment — An Analysis.”
The article detailed a dispiriting history from 2013 to 2020. More important, it listed the 16 most common mistakes that hospitals and health systems made while trying to navigate the new risk environment of the Next Health Care.
I found this interesting because of course right at this moment much of the health care industry, in many different ways, is trying to move away from the traditional fee-for-service payment system, which has given the whole industry adverse incentives, leading to much higher costs, poorer quality and restricted access. The rubric of the day is “volume to value.” And I see many different institutions and systems across the country making exactly these mistakes already in 2013.
As you read this list, ask yourself in what way you and your institution might be making the wrong decisions, and ask yourself what they will look like looking back from 2025.
Stick with fee-for-service. Though they included various incentives and kickbacks, most accountable care organizations and ACO-like structures built in the 2012–2014 period were based on a payment system that remained stubbornly fee-for-service. Systems continued to make more money if they checked off more items on the list (and more complex items), rather than solving their customers’ problems as well and as efficiently as possible.
Continue reading “How to Fail at the Next Health Care”
Filed Under: OP-ED, The Business of Health Care
Tagged: ACOs, Costs, Fee-for-service, Hospitals, Joe Flower, The Affordable Care Act, the business of healthcare
Jun 11, 2013
What is the path forward for physicians who want to remain in private practice, outside the constraints of health system employment? How will the environment change and what new demands will that place on practices and physicians? What follows are the observations of one industry-watcher who has worked on all sides of health care, but who now spends most his time focused on the interests of those who pay for it. No crystal ball, but several trends are clear.
There are now concrete signs that health care’s purchasers are exhausted and seeking new solutions, that a competitive marketplace is emerging and getting increasing traction. As they abandon ineffective approaches, the paradigm that has dominated the industry for the past 50 years will be upended. The financial pressure felt by buyers will transfer to the supply side health industry that has come to take ever more money for granted.
For decades, fee-for-service payment, inclusive health plan networks, and a lack of quality, safety and cost transparency have been enforced by health industry influence over policy, effectively neutralizing the power of market forces.
Without market pressure, physicians have felt little need to understand their own performance relative to that of their peers. The variation of physician practice patterns within specialties has been high, with some physicians’ “optimizing their revenue opportunities” by veering wildly away from evidence-based practice. Even so, until recently in this dysfunctional environment, it has been nearly impossible to identify high and low performers.
Continue reading “How Physician Practices Can Prepare for a Health Care Marketplace”
Filed Under: Physicians, THCB, The Business of Health Care
Tagged: ACOs, Brian Klepper, Fee-for-service, Physicians, practice management
Apr 24, 2013
We should have seen it coming, really. It was entirely predictable, and the most recent RAND report proves it.
We incentivized comprehensive IT adoption, making it easier to bill for every procedure, examination, aspirin, tongue depressor, kind word and gentle (or not) touch without first flipping the American healthcare paradigm on its head, if such a thing is even possible.
According to analysis by the New York Times, hospitals received $1 billion more in Medicare reimbursements in 2010 than they did five years earlier. Overall, the Times says, “hospitals that received government incentives to adopt electronic records showed a 47 percent rise in Medicare payments at higher levels from 2006 to 2010 … compared with a 32 percent rise in hospitals that have not received any government incentives …”
To paraphrase the mantra of Bill Clinton’s successful 1992 presidential campaign: It’s the system, stupid. More specifically, it’s the business model, stupid, the fee-for-service system in which electronic health records are enabling tools.
It’s also the law of unintended consequences. You know … you take action, planning on this but instead you get that.
Like the introduction of cane toads in Australia to kill beetles (they couldn’t jump high enough). Like letting mongooses loose in Hawaii to manage the rat population (they preferred native bird eggs). Like Kudzu, the insatiable vine that’s devouring the South.
According to the authors of the RAND report, the problem is with the incentive structure that encourages more tests and procedures. Well, of course it is. Doctors and administrators have a clinic or hospital to run. They have expensive invoices from Epic and Cerner to pay. They can now track and bill for all this stuff they used to not get paid for. Are we surprised?
And meanwhile, fee-for-service leads us down a contradictory rat hole of massive healthcare costs and lousy public health. Continue reading “It’s the System, Stupid: Reversing the Law of Unintended Consequences”
Filed Under: Uncategorized
Tagged: ACOs, Cerner, Commonwealth Fund, Costs, Department of Veteran Affairs, Edmund Billings, EHR, Epic, Fee-for-service, Hospitals, Incentives, Intermountain Healthcare, Kaiser Permanente, RAND study
Feb 5, 2013
What a week last week! First the disgraced cyclist confession and later the baffling college-football-player-and-his nonexistent-(dead)-girlfriend story, with the RAND report sandwiched somewhere in between. It’s positively a scandal-palooza.
What’s that? You don’t feel like the recent RAND report, which basically says that a 2005 RAND study financed by GE and Cerner was wildly optimistic in predicting about $81 billion in potential health care cost savings through widespread adoption of electronic health records, qualifies as a genuine hoax, controversy, scandal?
But it does neatly frame what is arguably a unique characteristic of the healthcare industry—a trait that extends to peripheral industries as well. Basically, healthcare is an interconnected environment. Call it the systems theory of healthcare, co-dependency … or just regular dependency. Call it what you want, but there is an interconnectedness in healthcare that we ignore at the expense of national wellness.
Witness key data points provided by the RAND report:
- Modern health IT systems are not interconnected and interoperable, functioning “less as ‘ATM cards,’ allowing a patient or provider to access needed health information anywhere at any time, than as ‘frequent flier cards’ intended to enforce brand loyalty…”
- Neither are they widely adopted, with an estimated 27 percent of hospitals utilizing a basic electronic record. Without broad adoption, interoperability is far less relevant.
- Improvements in quality of care / patient safety and reductions in healthcare costs (which have grown by $800 billion since 2005) are not manifesting with EHR adoption, in part because hospitals and clinics are rushing to adopt mediocre solutions and garner federal funds.
- The provision of care is the same as it ever was, even though EHRs are frequently promoted as the optimal tool for a different kind of care.
The reasons for these disappointing stats are readily apparent and unalterably interconnected.
Continue reading “Are Healthcare and Health IT in a Dysfunctional Relationship?”
Filed Under: THCB
Tagged: Cerner, Costs, Edmund Billings, EHR, EHR incentives, Fee-for-service, General Electric, HIT, Hospitals, Interoperability, IT vendors, Meaningful Use, Patients, Physicians, Quality, RAND study
Jan 23, 2013
We physicians like to think that we are really different from other workers.
We physicians, perhaps thinking back to that medical school application essay we all wrote, really believe that we went into this career to simply help others. We physicians truly believe that we always put our patients first.Because we sincerely believe all of the above, we are shocked when someone like Uwe Reinhardt points out that collectively we act just like any other worker in the economy.
The classic 1986 letters between the Princeton professor Reinhardt and former New England Journal of Medicine editor Arnold Relman highlight the tension between how we think of ourselves and how we act.
Relman thinks physicians are special and he asks Reinhardt the following question:
“Do you really see no difference between physicians and hospitals on the one hand, and ‘purveyors of other goods and services,’ on the other?”
Reinhardt is ready with a long answer that should be read in its entirety. The short answer is that doctors act like any other human beings. A portion of his answer includes the following:
“Surely you will agree that it has been one of American medicine’s more hallowed tenets that piece-rate compensation is the sine qua non of high quality medical care. Think about this tenet, We have here a profession that openly professes that its members are unlikely to do their best unless they are rewarded in cold cash for every little ministration rendered their patients. If an economist made that assertion, one might write it off as one more of that profession’s kooky beliefs. But physicians are saying it.”
Continue reading “The Battle for the Souls of American Doctors”
Filed Under: OP-ED, THCB
Tagged: Dr. William F. House, Fee-for-service, Kent Bottles, physician pay, primary care, Uwe Reinhardt
Dec 20, 2012
The 21st century challenge for the American health care delivery system is to deliver higher quality care for less money. Republican and Democratic experts agree that payment reform involving transitioning from fee-for-service to global, value-based systems is necessary for us to achieve that goal. Accountable care organizations (ACOs) are the new entities that will receive the new global payments and distribute them to the doctors, allied health professionals, hospitals, and post-acute care facilities that care for the patients; Medicare ACOs are being piloted under provisions in the Affordable Care Act (ACA) and Commercial ACOs are being developed by private insurance companies, hospitals, and physician groups.
The ideal payment system would support the ideal value-driven health care delivery system. Distinguished expert panels convened by the Commonwealth Fund and the Institute of Medicine have described the attributes of a system that would be far superior to our current delivery system:
· Care would be patient-centered
· Care would be safe
· Care would be timely and accessible
· Care would be efficient with little waste
· Care would be coordinated among providers and across facilities
· Continuity of care and care relationships would be facilitated
· Collaboration among providers would deliver high quality, low cost care
· Patients’ clinical information would be efficiently exchanged
· Caregivers would engage patients in ways that would maximize health
· Accountability for each aspect and for total care would be clear
· Continuous innovation, learning, and improvement would occur
Continue reading “Is Fee-for-Service Really Dead? Really?”
Filed Under: The Business of Health Care
Tagged: Fee-for-service, Kent Bottles
Dec 12, 2012
Last week veteran analyst Vince Kuraitis reviewed a report from the consulting firm Oliver Wyman (OW), arguing that the trend toward reconfiguring health systems to deliver more accountable care is more widespread than any of us suspect.
“The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise,” our analysis finds that 25 to 31 million Americans already receive their care through ACOs-and roughly 45 percent of the population live in regions served by at least one ACO.”
OW provides a well-reasoned analysis and conclusions, but I’m skeptical. In discussions with health system executives around the country, I hear some movement toward change, but relatively few organizations are materially turning their operations in a different direction. The specter of policy change is looming, but it is still abstract. As I’ve described before, market forces are intensifying, but they’re mostly still scattered and immature.
Fee-for-service remains the prevailing paradigm, and there is no palpable threat to the health care excess that is business-as-usual. Several health system CFOs have told me: “Why should we take less money until we have to?”
There’s no question that Medicare’s ACO programs have the bulls-eye on reimbursement for health systems, which are a convergence point for a large percentage of appropriate and inappropriate health care costs. But there is a silver lining. American health care is so replete with waste – on the order of half or more of all health care expenditures – that any system that tries could deliver dramatically lower costs and improved outcomes.
Continue reading “ACOs: We’re NOT There Yet”
Filed Under: THCB, The Business of Health Care
Tagged: accountable care, ACOs, AtlantiCare, Brian Klepper, Fee-for-service, Incentives, Oliver Wyman, payment reform
Dec 10, 2012