Fragmentation, Fee-for-service and Futile care are the trifecta of what is supposedly ailing our health care system, or non-system, as it is fashionably described nowadays. Modern health care has reached its crisis point not due to hordes of people keeling over and dying in the streets, as they did during historical health care crises brought on by plagues and famine, but due to exploding costs of delivering decent care to all people. Since the issue now is mostly financial, health care as a discipline is attracting the interests of those who practice the dismal science of Economics. Over the last two centuries, economists have successfully addressed the F words in other industries with spectacular results in developed countries, so why not apply lessons learned to health care?
The obvious reason to treat economists with suspicion in health care is the quintessential argument that people are not widgets, but there is another problem. Most tried-and-true solutions for increasing availability and quality while lowering costs of products are not accounting for the other explosion occurring as we speak – the Internet. How can this assertion be true when we are in the midst of a government sponsored spending spree to computerize medical records and adopt Health Information Technology (HIT)? Apparently, even those who lead and define the HIT revolution are reluctant (or unable) to grasp its full implication, thus they are consistently underestimating the power of the Internet to serve the individual, and as a result are hedging their bets on technology with classic industrial models from days gone by.
Two years ago, I wrote a piece in HBR called “Turning Doctors into Leaders,” which began with the sentence “The problem with health care is people like me” — that is, physicians who had been trained in an era when excellence in medicine was defined by what you did as an individual. In the short period since, the concept that medicine is actually a team sport has become increasingly accepted. Because of medical progress, there is too much to know, too much to do, and too many people involved to give patients excellent care, unless we get better at working in teams. A lot better.
Sounds good — but it’s a lot easier to write or talk about than to do. In fact, organization and collaboration are unnatural acts in much of medicine, where payment is still fee-for-service and the culture of individualism still dominates. Progress is being made — more in some regions and at some delivery systems than others. In this post, I will assess that progress by giving grades in various key functional areas akin to those that sportswriters are currently giving baseball teams as they get ready to break spring training. Like those sportswriters, I will try to blend optimism and realism.
Ability to put a team on the field — C. The payment system actually is changing, and ambitious pilots like Medicare’s Accountable Care Organization contracts are underway. In these new contracts, providers share heavily in savings and losses. And, as a provider, I can tell you that we really hate to lose (i.e., bear financial losses for care we have given).
The U.S. Department of Health and Human Services’ recent announcement to move the Medicare program toward value-based payments is among the most promising recent developments in health care.
While changing the way we pay for care will not be easy, we believe that shifting away from fee-for-service to value-based payments could be a catalyst to a better, more affordable health care system in our country.
Three Benefits of Paying for Quality
There are numerous potential benefits to paying for quality rather than quantity, including the three we want to focus on today.
- We believe this payment shift has the potential to accelerate progress toward achieving the Triple Aim – defined as better individual care, better population care, and lower cost.
- We believe the payment shift by Medicare will accelerate the transition to value-based payments among commercial insurers – a major benefit to employers in terms of improved health for employees and greater affordability.
- We believe value-based payments have the potential to help slow – and possibly reverse – the epidemic of physician burnout in the United States, particularly among primary care doctors.Continue reading…
There are no winners in the fee-for-service game.
It’s time to toss the whole business-as-usual model — for your own good and the good of your customers.
The emerging Default Model of health care — the “consumer-directed” insured fee-for-service model in which health plans compete to lower premiums by bargaining providers into narrow networks — not only does not work for health care’s customers, it cannot work. This is not because we are doing it wrong or being sloppy. By its very nature the Default Model must continually fail to bring our customers what they want and desperately need. Ultimately it cannot bring you, the providers, what you want and need.
Take a dive with me into the real-world game-theory mechanics of the health care economy, and you will see why. It’s time to rebuild the fundamental business models of health care.
An organization’s “business model” means: How does it make a living? What revenue streams sustain it? How it does that makes all the difference in the world.
Saturday, Natasha Singer wrote in the New York Times about health plans and healthcare providers using “big data,” including your shopping patterns, car ownership and Internet usage, to segment their markets.
The beginning of the article featured the University of Pittsburgh Medical Center (UPMC) using “predictive health analytics” to target people who would benefit the most from intervention so that they would not need expensive emergency services and surgery. The later part of the article mentioned organizations that used big data to find their best customers among the worried well and get them in for more tests and procedures. The article quoted experts fretting that this would just lead to more unnecessary and unhelpful care just to fatten the providers’ bottom lines.
The article missed the real news here: Why is one organization (UPMC) using big data so that people end up using fewer expensive healthcare resources, while others use it to get people to use more healthcare, even if they don’t really need it?
Because they are paid differently. They have different business models.
UPMC is an integrated system with its own insurance arm covering 2.4 million people. As a system it has largely found a way out of the fee-for-service model. It has a healthier bottom line if its customers are healthier and so need fewer acute and emergency services. The other organizations are fee-for-service. Getting people in for more tests and biopsies is a revenue stream. For UPMC it would just be a cost.
The evil here is not using predictive modeling to segment the market. The evil here is the fee-for-service system that rewards waste and profiteering in medicine.
In a previous blog we demonstrated how guidelines can compromise the care of individual patients when designed to serve the health care system.
Why should treating physicians defer to guideline committees at all, we asked? For decades medical students have been taught to read and understand information from published papers.
We are all trained in critical appraisal and can keep up with the clinically meaningful literature, the literature that is relevant and accurate enough to present to patients. Just because there are nearly 20,000 biomedical journals does not mean that any, let alone all are replete with meaningful information. We can discern the valuable from the not valuable; why do we need others to tell us?
In fact, we even argued in our last post that patients can and should judge the value of medical information. After all, they face the consequences of misinterpreting the likelihoods of benefit and of harm associated with various options for care.
No one remembers the numbers that describe the chances for benefit and harm or ask more questions about the veracity of information than a patient who must choose. The smartest information managers we have ever encountered are our patients; when informed, they quickly determine the validity of the information and apply their personal values to the estimations of the chances for benefit and harm.
Take the example of a patient who recently entered into a therapeutic dialogue with one of us, RAM. This was not the traditional clinical interview. This patient had been diagnosed with prostate cancer and was scheduled for an approach to treatment that the diagnosing physician had offered as the most sensible. However, the decision did not rest easily.
The appointment with RAM was scheduled because the patient sought a dialogue that might offer a chance to reflect on the rationale for the approach he was about to initiate. Two hours into the dialogue, the patient, a 40ish year old African-American man accompanied by his wife, were mulling over the marginal benefits and harms of the options for treating an early stage prostate cancer.
The wife asked how many African-Americans were in the study under discussion. “None”. The husband perked up and then asked, “How many people in the study was my age?” “None”. They then asked if the difference in benefit was a certain, fixed amount? “No, it varies over this range.” – examining the descriptive statistics.
They then asked when the study was started and did it pertain to the present day. “It started over 15 years ago” and the stage of disease of the men in the study was generally more aggressive than in this particular case.
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.
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)?
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.
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.