A Better Way to Pay: Shifting Health Care Payment Models

The way health care is delivered and paid for is undergoing a dramatic transformation.

Our nation’s single largest health care purchaser, Medicare, is phasing out the fee-for-service payment model, where doctors are paid based on the volume of services they provide. By 2018, 90 percent of Medicare payments will be for value-based care, where doctors are paid based on the quality of their services. The value-based health care payment model is the result of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

We talked with two StrategicHealthSolutions, LLC (Strategic) health care experts to learn more.

The Newest Medicare Payment Models Encourage Providers to Focus on the Quality of Health Care, Not the Volume of It

Over the years, multiple payment models such as managed care, bundled payments, and value-based payment have been introduced as alternatives to fee-for-service care. Changing the way Medicare pays providers also means changing the way doctors care for patients.

Dr. Anton Piskac, Medical Director, explained the differences. “In fee-for-service care, each service provided is billed separately. In managed care, providers agree to accept a fixed monthly amount per person to cover a defined set of services for a group of people,” said Piskac. If providers spend less on those services than the fixed monthly amount, Piskac said, they could receive a bonus. If they spend more, the providers forfeit any potential bonus and could lose a percentage of the amount Medicare has already paid them. The better a provider manages the group’s health, the less likely individuals in the group are to use health care services; thus, the more likely the provider is to get a bonus.

In the bundled (or episode) payment model, according to Piskac, there is a fixed dollar amount per episode of care. An organized group of providers agrees to provide all care needed for a type of service—say knee replacement or cardiac bypass surgery—for a fixed, per-episode cost. Like managed care, the incentive is to provide less health care while managing a healthier patient. The better the provider manages the patient through an episode of care, the less likely the patient is to use health care services and the more likely the provider is to get a bonus.

Strategic’s Health Care Experts Discuss Why the U.S. Is Shifting Toward Value-based Care and Payment

A blend of historic and present payment models, value-based care is designed to drive down costs and improve patient outcomes—offering a remedy to today’s cost and quality challenge in health care.

Value-based payment, which is what the U.S. is shifting toward, adjusts the amount providers are paid based on how well they satisfy certain quality outcomes. Examples of these outcomes include avoiding complications, reducing readmissions, or adhering to evidence-based treatment protocols. Poor performance on these quality indicators results in a decrease in what providers are paid for their services, and higher performance increases reimbursement. The healthier the patient, the less health care services they need, and the higher the provider’s payment.

The U.S. currently spends billions of dollars on things that can never really improve our health, according to Piskac, and how providers are paid is key to achieving much-needed health care reform. The U.S. spends more on health care than any other country, yet continues to rank low on health care outcome measurements.

Shannon Vaughn, Content Requirements Manager, added, “The fee-for-service model does not encourage a healthy population, and is not sustainable if we hope to keep Medicare and Medicaid in place for the elderly and poor.”

Why Are Health Care Payment Methods Changing Now?

CMS projects health care spending is growing at 5.6 percent per year, 1.2 percentage points faster than gross domestic product (GDP), making health care spending 19.9 percent of GDP by 2025. Many in the health care industry, including Strategic, are sounding the alarm that this type of spending is unsustainable, putting the health of our nation and its health care ecosystem at risk.

Through better management—the right service, the right care, at the right time—Strategic believes we can create sustainable health care in our nation for future generations. Value-based care and bundled payments are steps in the right direction toward this goal.

In our next blog post, Piskac and Vaughn will share health care payment model pros and cons, and how some models have resulted in unintended consequences—including fraud, waste, and abuse.

Are you ready to help solve our nation’s biggest health care challenge?

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About the authors:

Dr. Anton Piskac

Dr. Piskac practiced internal medicine in a private practice for 25 years. An additional 20 years of his career were spent in peer review organizations and hospital settings, identifying and improving provider performance to achieve better patient outcomes. He retired for 3 months before concluding that he wasn’t well-suited for retirement. He is an asset to StrategicHealthSolutions and in helping fellow providers. His skills have been used to improve processes and efficiencies within Strategic, and to provide oversight for CMS contracts.

Shannon Vaughn

Shannon Vaughn is a licensed attorney with 10 years of experience across technical, educational, and legal professional fields. She earned a Bachelor of Science in Electrical Engineering from Seattle University and her law degree from Saint Louis University School of Law. Ms. Vaughn has been employed with Strategic since February 2013 and currently works as a Deputy Program Manager. She was previously employed by the Colorado Business Group on Health as a Project Manager.

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