Transitioning from Fee-for-Service to Value-Based Reimbursement

At the latest Health Technology Forum event in San Francisco, four panelists shared their views on the status of our current healthcare system, and what the transition to a value-based reimbursement model will mean for different stakeholders.

Fee-for-Service: Quantity over Quality

Most healthcare services in the U.S. right now are paid with a fee-for-service model.

A small percentage of services are paid under capitation, a fixed amount of money per patient per unit of time paid in advance to physicians for health care services. Capitation is a payment model designed to control healthcare costs by having physicians share some of the financial risk for services provided to patients. Under capitation, resource utilization is tracked in physician practices and there are financial rewards linked to quality of care provided.

But since most providers are paid based on the volume of care rendered, this traditionally has incentivized practitioners to give more treatments than what their patients need. Under the fee-for-service model, providers are rewarded financially not for quality of care, but quantity of care. This has led to electronic health records being built to optimize billing, rather than patient care or user experience. These misaligned incentives lead to significant medical waste and poor health outcomes, despite the high cost Americans pay for healthcare.

The fee-for-service model is one of the contributing factors to the astronomical (and rising) costs of healthcare in the U.S., and the shift to a value-based reimbursement model is an attempt to control the quality and cost of healthcare. The value-based model will bring about many changes in the healthcare marketplace, which means that new challenges and opportunities will inevitably manifest.

• What does the transition from a fee-for-service model to a value-based model mean?
• What changes will come in the health marketplace?
• How will we quantify and measure health outcomes?

These are just a few of the questions that drove the conversation, as panelists shared their perspectives on the current system and changes to come, through the lens of their respective experiences.

Panelists

Alice Chen, MD, MPH, is the Chief Medical Officer for the San Francisco Health Network (SFHN), co-director for the Center for Innovation in Access and Quality at San Francisco General Hospital, and professor of medicine at UCSF.

Dr. Chen used the elegant analogy of ‘banging on a trashcan’ to describe the current fee-for-service model:

“You make noise, you get paid. Doesn’t have to be rhythmic or music.”

But since Medicare stated the ambitious goal of moving to 90% value-based reimbursement by 2018, the push to linking care quality to payments means providers will have to play to the tune of quality rather than volume. This means that public hospitals providing healthcare safety nets need to use data to inform interactions for patient outcomes for value based care, and a shift to population health management instead of providing volume of services.

Public hospitals cater to large volumes of Medicaid patients, and with Medicaid currently covering 1 in 5 Americans and 1 in 3 Californians, these hospitals will have to rely on delivery system reform and redesign to address the various measures of quality care.

San Francisco has long been a city committed to a strong safety net for its population, and value-based reimbursement means that successful care delivery will require a robust ability to use data to inform interventions for patient outcomes. And as value-based reimbursement is a bipartisan agreement, it looks to be a policy change that will stay for good.

Systematic changes will not happen overnight, but is a long-term goal that public hospitals must work toward to survive in this new value-driven paradigm.

Amanda Goltz is the Vice President of Digital Innovation at BTG and manages the portfolio of digital initiatives combining clinical interventions, device technology, and digital services.

Having worked at Aetna, Pacific Business Group on Health, and Massachusetts General Hospital along with mentoring countless digital health startups, Amanda drew on her diverse experiences to lead a discussion about the current state of healthcare.

She quipped:

“ I often hear entrepreneurs say ‘I’m going to disrupt healthcare’. And I tell them — no, you’re not. I’m sorry. Here’s the bad news: U.S. healthcare is $3.2 trillion in spending. That’s almost the equivalent of waking up and saying I’m going to disrupt Germany’s economy. The entire German economy ($3.4 trillion) — everything they do. It’s just not happening. But there are plenty of problems to fix and it is possible to make significant and lasting change in healthcare if you can create real value for stakeholders.”

That is why if you’re going to talk about healthcare disruption in any way, perhaps it’s best to be specific about which segment of healthcare you’re looking to disrupt. Though Amanda isn’t optimistic about the prospect of a single entrepreneur disrupting healthcare, she does believe that it’s possible to make significant and lasting change in the fragmented system.

Amanda goes on to explain that there are currently 4 seats at the healthcare table: employers, vendors, insurers and providers. Notice how patients aren’t listed, because they don’t have influence. The incentives aren’t designed for patients to have power in the healthcare system.

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Employers at the Table

Employers spend about $600 billion per year on health insurance, with half of Americans getting their health insurance through their employer. This happened because after WWII, wage freezes forced employers to find a way to differentiate themselves to attract and retain talent.

Enter health benefits.

Current corporate tax policy favors employer benefits over salary compensation, and until that changes, employers will likely continue to be major stakeholders in the system.

Insurers are not Profiting Alone

Contrary to what the media may portray, health insurance companies are not the sole evildoers profiting from the demise of patients.

Many different players are profiting from the bad situation, and it will take a system redesign to uproot the poor incentives currently in place. Since many large insurers are publicly traded companies, they have a fiduciary responsibility to deny claims and increase premiums. This is not merely a healthcare issue but a complex result of the market-driven capitalist system we have in place as Americans.

But The Times They Are A’-Changin’

Everything is going to change soon in U.S. healthcare.

How can we help people understand how to help themselves? How do we take on a stance of empowerment and not treatment? These are questions that must be asked as stakeholders work to fix the consumer experience in healthcare. Features such as cost estimators, access to health records, mobile post-care instructions and follow-up notifications, online appointment scheduling and central payment portal for payers and providers are just a few examples of what consumers are expecting and opportunities stakeholders have to innovate.

Hospitals and physicians will only be able to profit by coordinating care together to reduce costs, improve quality and enhance quality of care delivery. The number one thing consumers want is not to be sick. We have to work towards aligning consumer incentives with those of the system and give the people what they want, instead of what we want them to want.

Most Successful Healthcare App?

You guessed it — Pokémon Go.

There is a lot we can learn from the success of the Pokémon Go app. We have to be careful with designing through the healthcare lens because intentions may not always correlate with outcomes. The most successful healthcare app being a fun flash from the past is a prime example of unexpected outcomes.

Consumers don’t want to think about ‘health’ and ‘gamification’. They just don’t want to get sick. Everything else is secondary. To create products the market deems valuable, we must align the way consumers view health and the way providers view it so we can operate from a perspective that includes everyone and win together.

Jonathon Feit is the CEO of Beyond Lucid Technologies, an award-winning health and safety IT firm that builds software to improve emergency response safety, efficiency, and cost-effectiveness. He shares insights in the emergency services space gained from 8 years of running his company. The MIH-CP program is the provision of healthcare using patient-centered, mobile resources in environments outside of the hospital.

EMTs are paid like Taxi Drivers

Jonathon sheds some light on a few major problems in the emergency medical services ecosystem. For example, there are no insurance codes for EMS, and they paid by the mile (just like taxis are). It is ironic that the professionals taking care of some of the sickest patients are paid the least. Jonathon explains that payment of EMS has nothing to do with admission to the hospital. Rather, it has to do with movement of the patient. The transport agency is paid by the mile and has nothing to do with admission. In other words, if the EMS agency does not transport, it does not get paid for any of the work it does for the patient. 

Using EMS as Primary Care

Unfortunately, there is a population of people who use EMS as their primary care. This includes the uninsured, elderly, low-income, and those with mental illnesses. The single strongest predictor of case status was homelessness, which was nearly eight times as commonly associated with frequent EMS use than other controls.

Cutting back on inappropriate ED usage remains a challenge because these are people who lacking access to basic healthcare and social services. In order to prevent readmissions and over-utilization of EMS, we must ensure that people are getting access to quality and affordable care.

Jonathon shares stories about ‘super’ and ‘mega users’ for EMS, who are often people just looking for help. They feel isolated and as such doesn’t know who else to call. He cites an example of how one person called an ER 300 times in a year because they felt scared and had no one else to turn to. He cites another example of a ‘super user’ who called the EMS many times because she was malnourished.

These examples expose major gaps in our healthcare system and suggests that comprehensive coordinated care models are needed to ensure those in the vulnerable population will not fall out of receiving care.

Meaningful Use Metrics and Reductions in ED Admissions

One of the meaningful metrics used to define value in the new care model is the reduction of returns to the ED.

The use of EMS is tied to population health, and in a value-based environment one of the metrics examined will be readmission rates to the EMS. Providers will have to identify the root cause of the problem and give patients the proper care to enable them to stay out of the hospital. This will mean taking a preventative approach to health rather than a reactive one.

People who need emergency medical care should not be turned away. But going forward, population health must be managed so that EMS don’t become a replacement for primary care.

Keeping vulnerable populations out of the hospital will take a collective effort and coordinated models of care will be more important than ever to ensure emergency services are not overused and individual needs are not neglected.

Shahid Rashid is the VP and Head of Product at ClearCost, a company bringing price transparency to healthcare.

Shahid spoke on the rise of healthcare consumerism and how it will help to define what value means in the marketplace.

Consumerism will enhance healthcare and open doors to innovation. Customers will help to define what the value is and the needs of the market will be indicators on where innovation needs to happen. Technologies enabling consumerism is a trend that will continue, and with economies of scale, bring quality solutions to the market at lower costs. As we can see from the current array of consumer tech products, the popularity of these solutions will empower customers to take a more active role in their health within a value-based ecosystem.

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Here are a few insights from 5 years of price transparency data his company gathered:

• When armed with information, consumers rarely choose low quality options, even if at low cost
• Even more rarely do consumers choose high cost options, regardless of quality
• When armed with information and options, most patients suffering from chronic conditions will make changes to save money

In this age of the conscious, educated consumer, Shahid poses that the market will be driven by what the consumers define as valuable to them and they will vote with their dollars. The new value-based system will include the consumer as a key stakeholder with a seat at the table and will drive the direction of innovation. The trend will follow what has already started happening in other industries, and the power will shift to consumers.

High-quality, consumer-centric services and products will win in the value-driven marketplace.

Looking Ahead

This is an exciting time for digital health as the existing system is shaken up and new incentives and stakeholders are introduced. The shifting power dynamic in the healthcare model will open up opportunities for entrepreneurs and organizations. There will be many areas with unmet needs, and collaboration will be pivotal to controlling the cost and quality of healthcare.

We can expect to see more justified care and (hopefully) less medical waste. A customer-centric approach and continuing innovation will redefine how we think about and consume health products.

The next SF HTF Chapter event will be in Menlo Park on August 23rd, where panelists will speak on the issue of mental health.