For a lot of healthcare startups, a major issue is convincing doctors to pay for and use new healthcare technologies that can improve the quality of care for patients. While the most common way physicians are paid today is fee-for-service, there is starting to be a shift towards more value-based payment structures.
Based
on physician surveys, a majority of doctors seem to prefer the fee-for-service
payment structure, since they get paid for “what they actually do.” However,
since doctors get paid more when they provide more services, this method is costly and inefficient and doesn’t take into account how well the doctor improves the outcome for their
patients. Below is a summary of the current payment models for physicians and some of the problems with them:
Pros/Cons of Standard Physician Payment Models
Salaried Model: Based on
preset income levels
- Doctors are not encouraged to manage costs
- Simple and easy to administer
Equal Shares Model: Revenue less
the expenses is distributed equally across all physicians in
the group
- Discourages overutilization of healthcare, since
extra expenses reduce the overall revenue and how much the doctors get
paid
- More productive physicians often dissatisfied
with the equally sharing allocations
- Does not encourage high productivity, since
there may be doctors that product less revenue within the group
Capitation: Prepayments
to physicians based on pre-defined services for the number of enrolled patients
- Physician takes on the role as a budgeter making
decisions on how services and costs are allocated
- Encourages under-utilization of services, since
doctors pay for additional services provided to patients
- Increased financial risk for treating sicker
patients, so it discourages providers from accepting sicker patients
- Cost-efficient
Fee-for-service: Payer
negotiates charge for each type of service with the provider based on a listed
fee schedule and then physicians are reimbursed for each procedure they perform
- Fee schedule determined by payers so per service
fees are often lower than what physicians feel is the appropriate cost
- Incentive for over-utilization of healthcare
- Low payments for basic primary care has
discouraged many physicians from choosing primary care
New Models based on “Value”
None
of the standard models effectively address how to reimburse physicians based on
the value of the services they provide, where value is defined by higher
quality with lower costs. And at the same time the newer models need to be both
fair for physicians, while providing the best outcomes for patients. The ideal
new model of physician payment would not encourage over/under-utilization of
services, but ensure standardization of care while maintaining patient-centered
care and utilizing the latest healthcare technologies without increasing costs.
These
new value-based contracting models are starting to become much more common. These
contract models align incentives across providers, members, employers, and
payers to improve clinical outcomes and the patient experience along with
improving cost efficiency.
Value-based
contracts are determined using the following payment methodologies:
1. A portion of the provider’s total potential
payment is tied to a provider’s performance on cost-efficiency and quality
performance measures. While providers may still be paid fee-for-service
for a portion of their payments, they may also be paid a bonus or have
payments withheld. For value-based contracts, this bonus is not paid
unless the provider meets cost efficiency and/or quality targets
2. Clinical integration fees paid to providers that
are contingent on the provider engaging in practice transformation to
adopt technology and processes that alter the manner in which they deliver
care
3. Cost-efficiency performance measures such as risk-adjusted total cost of care, a percentage of inpatient
readmissions, inpatient admissions, inpatient days, emergency room visits,
and preventative care measures
The most common value-based new model is pay-for-performance.
Pay-for-Performance: Financial
incentives for pre-defined performance goals often determined by patient
outcomes
- Often involves upfront additional administrative
costs to track and document performance metrics
- Performance incentives tend not to be very
meaningful (i.e. offering a bonus of 1.5% when the right target needs to
be closer to 10% in order to be an adequate incentive)
- Payers are experimenting with several different performance
metrics that it becomes difficult for providers to manage all the
different programs (i.e. over 60 different indicators, with no single
metric used by all programs)
- Somewhat successful in achieving the goals of
improving quality
Big
healthcare plans like UnitedHealthcare are now participating in pilots based on the
pay-for-performance model. They are implementing a significant ramp in their
alternative payment models over the next three years, such that 50-70% of
contracts will be value-based by 2015.
I
do believe that the future of our healthcare services and reimbursements will
be value-based, but the shift from one payment model to another will take
years, not months. And while there are more and more systems that provide
incentives for quality and patient satisfaction, the incentives need to be a
larger portion of the total compensation doctors receive because otherwise they
will be focused on increasing the number of patients to increase their compensation. The other difficulties of transitioning to new payment models include frustration that different payers use
different metrics in pay-for-performance, high administrative overhead and
complexity in adopting new models and concern that implementing new programs
may take attention away from patient care and other activities. However, I am
hopeful that the newer models will provide more cost-effective reimbursement for the quality of care we all know is needed in order to improve our healthcare system.
