Getting Beyond Fee-For-Service

Posted 12/02/13 on Medscape Connect’s Care and Cost Blog

The catchy title of a recent Harvard Business Review Blog post, The Big Barrier To High Value Health Care: Destructive Self-Interest, suggested that the Institute for Healthcare Improvement (IHI) is forging arrangements that can overcome fee-for-service reimbursement’s propensity to drive excess. As the honest broker, IHI could advocate for arrangements of mutual self-interest based on the right care, better outcomes and less money. Employers and unions would get lower costs, with improved health and productivity. Health systems and health plans would win more market share (at their competitors’ expense), realizing longer term relationships that could facilitate sustainability as market forces intensify.

The substance of IHI’s description was less satisfying, though. Their principles – common goals, trust, new business models, and defining roles for competition and cooperation – are obvious ingredients in any workable business arrangement. But the authors never talked about the money. That left plenty of room for skepticism by those of us who have heard more than one CFO ask, “Why should we take less money until we have to?” What, exactly, is the incentive for health care organizations to moderate their care and cost patterns?

The harsh truth is that, so long as fee-for-service (FFS) reimbursement remains in place, we won’t make headway against the immense excesses that have plagued US health care. FFS pays for piecework, so it encourages more services while failing to appreciate results and value. All services are considered appropriate, so all are reimbursed without differentiating what results in better outcomes. All health care professionals and organizations, except for primary care, benefit from this structure, so it has become nearly impossible to dislodge.

Reform has held out the promise of moving payment from volume to value. But it is still mostly an aspiration and, no doubt, the rank and file of the health care lobby is working hard to assure that it stays around as long as possible, independent of external pressures. Most Accountable Care Organizations, for example, are still paid under FFS, which is why so little real progress has been made in changing the ways care is delivered.

A recent Medscape article asked whether FFS might really disappear. It pointed out that while recent reports from four prominent health care policy groups – The Robert Wood Johnson Foundation, The Bipartisan Policy Center, The National Commission of Physician Payment Reform and The Brookings Institution – had all strongly advocated for a transition away from FFS and toward some form of value-based reimbursement, CMS’ progress toward this goal has been glacial. Paul Ginsburg, the highly respected Director of the Center for Studying Health System Change, notes that Medicare hasn’t announced that it will drop fee-for-service or reduce reimbursements for physicians who continue with it.

That, of course, is welcome news to most doctors. Many physicians are adamant that FFS should remain, and that their clinical judgment is not influenced by money. But the truth is murkier. There is a mountain of literature on unwarranted practice variation and overtreatment, and their relationship to income.

Most physicians also have nagging doubts about money’s role. In a 2012 survey by the Physicians’ Foundation, 86% of almost 14,000 responding doctors admitted that “Money trumps medical care” was either very important or somewhat important in medicine’s decline.

In the worksite clinic sector, which caters to employers who have become value-sensitive, many vendors, including my firm, have stepped away from FFS reimbursement. Instead, they pass through operational costs with no markup, and then charge a per employee (or per enrollee) management fee. This means that they have no financial stake in delivering unnecessary care (or denying necessary care). Their clients evaluate their performance through measurable changes in health outcomes and cost. It is in the vendor’s interests to implement mechanisms that drive appropriateness inside the clinics and, to the degree possible, downstream, throughout the continuum.

The differences between this and conventional, FFS medicine are profound. FFS reimbursement has transformed much of health care into a merchant enterprise in which the central incentive is to order more products and services, for the margin associated with each one. In the clinic model, the goal is to manage the process as effectively and efficiently as possible. It is a payment model that is more aligned with the interests of the patient and the purchaser.

There are a range of alternative payment models that make a great deal more sense than what Americans are saddled with today, with more rational incentive structures for care. The health care industry will continue to fight hard to protect the excesses it has come to take for granted. As with the rest of meaningful reform, it will fall to business, the most important health care purchasers other than government, to come together to drive approaches that can bring health care back into balance. The industry is counting on business to remain unfocused and ineffective. The question is whether businesses, as health care purchasers, will remain impotent or learn to leverage their collective heft.

A Broader Approach to Managing Health Care Risk

Posted 2/15/13 on Medscape Connect’s Care & Cost Blog

Health care’s purchasers crave certainty. But complexity – and therefore uncertainty – rules. Assurances are hard to come by.

The most common question asked by prospective clients of my onsite clinic/medical management firm is how much less their employee health benefits will cost if they deploy our services. They often expect that we’ll review their claims history and nail down what their health care will cost once we’re involved. Looking in the rear view mirror can inform the future, but it isn’t foolproof.

The Complexity of Health Care Risk

The challenge here is that so many different mechanisms contribute to the need for care, the ways care is accessed, the ways care is delivered, and the ways it is priced. Even mechanisms that, in isolation, are strong, often are inadequate in the context of larger cost drivers.

This means that while predicting results in general terms is straightforward, doing so with any precision or specificity is a challenge. My firm can point to consistent previous performance with other clients, and show that in most cases we generate a 15+ percent overall savings on group health expenditures, net of the clinic investment. And we can detail how our management of the process is both broader and more targeted than the management of risks before we arrived. But while we’ll sometimes guarantee certain performance targets, we also know that the cards can and will sometimes fall against us.

Even Useful Management Approaches May Prove Inadequate

In the onsite clinic sector, vendors often describe the savings they’ll generate in terms of “replacement” costs. They may argue, for example, that a clinic office visit will cost $X less than on the health plan network. Drugs and labs will cost $Y less in the clinic’s dispensary than they would outside.

This is certainly true. Many primary care services can be delivered more cost effectively in a clinic than in a conventional primary care practice that is trying to optimize the revenue opportunities available through fee-for-service reimbursement.

But a clinic’s unit cost savings may not be large enough to reduce overall health plan costs. Health plan performance is shaped not just by clinical management, but also by financial and administrative influences. Even good primary care, which we know creates positive impacts throughout the system, isn’t an adequate check on a system that, over decades, has developed many often subtle ways to extract more money than it is legitimately entitled to.

The failure to address the robust mechanisms that underlie care and cost may account in part for the fact that, even with the addition of screening, care managers and other components, most medical homes developed in traditional primary care practices have been unable to demonstrate measurable savings or health improvements.

Vectors Of Health Care Risk

It can be useful to list some of the drivers of risk, as a way of developing a broader strategy.

Of course there are the conditions that require care. Health care must tend to the entire range of health experience: pregnancy, injuries, diabetic episodes, incontinence, heart attack, arthritis, neurological disease and everything in between. Frailties can come on us suddenly, in a stroke or a fall, or be progressive and chronic, as with asthma or cancer.

In groups or regions, these issues may be spun by cultural tendencies. Some behaviors generate or exacerbate health conditions. And, as the Dartmouth Atlas makes clear, health care providers in different markets may respond to the same conditions with entirely different care and cost patterns.

But our health system also has financial incentives that encourage overtreatment, drive up pricing, keep information isolated, and steer patients to particular sites, often independent of appropriateness or performance. Quality and cost results can vary wildly, depending on which doctor was seen, whether information could be seamlessly exchanged, whether the care was coordinated, and many other factors.

Layer on top of this whether people are willing to engage in their own health. Will they participate in approaches that are designed to identify problems and follow a regimen to manage ongoing conditions?

We also know that incentives can influence lifestyle, how care is accessed and how it is adhered to, and therefore the health outcomes and costs that result. Carrots and sticks can encourage patients to follow rules built around what’s known to work: doctors and services that offer the best value, letting the primary care physician be your patient advocate and guide, bringing specialty information back to the primary care doctor.

And then there’s just plain poor health and bad luck, which drive catastrophic cases, the fastest growing area of health care cost. People in automobile accidents or suffering major illness. Munich Re recently reported that the percentage of cases that exceed $1 million grew seven-fold over the past decade. Many high cost cases involve misdiagnosis and mismanagement that result in poor quality and excessive cost, one reason behind Walmart’s recent Center-of-Excellence contract announcement.

Multi-Vectored Problems Require Multi-Vectored Solutions

The deeper point is that much of this turmoil can be managed more effectively but that doing so requires a multi-focused effort. The emerging models for improving care and cost can’t only rely on primary care, or selecting better doctors and hospitals, but will leverage incentives, data-driven narrow networks, volume-based contracts, clinical decision support, care-neutral reimbursement, and a host of other mechanisms that can bring health care back into homeostasis.

In other words, the new way of managing care isn’t just about replacing a higher cost service out on the plan with a lower cost one in the clinic. It’s about changing the care patterns and many of the structures that support that care. It’s about better ways to manage the processes that undergird care and cost. And while it may be difficult to precisely forecast the result each time, it isn’t hard to understand that the path to that result is less rigged, better for the patient and better for the purchaser.