Paying for Better Health: At the Crossroads (Part 2)

This month, we’re bringing you Part 2 in our 3-part series on the alternative health care payment models in Medicare, covering the pros and cons of each. As mentioned by Dr. Anton Piskac in our previous blog post, three main payment models have been introduced to replace the outdated Fee-For-Service model: managed care, bundled payments, and value-based payments.

Fee-For-Service Health Care Payment is Easy, but Doesn’t Focus on Quality

The current Medicare Fee-For-Service model essentially consists of an itemized list of covered services with specific pricing for each. Fee-For-Service is helpful for patients in the sense that it’s easy to understand, because they “can see a direct correlation between the service provided and the cost,” said Piskac. Another benefit is that the model allows patients to keep easily accessible records and enables them to determine if the provided care was worth the cost.

However, this does not guarantee patient satisfaction. And, providers are reimbursed for almost any type of care they provide, meaning they have incentives to deliver services that may not be necessary. Fee-For-Service can thereby tend to encourage providers to focus on the quantity of care rather than the quality. Regardless of the quality of service (good or bad), providers get paid the same.

Managed Care Can Lower Costs; however, Drawbacks Exist

The managed care payment model is more standard in pricing. It works by paying health care providers a set amount to perform a range of services instead of charging patients for each service. This practice is known as “capping.” In theory, capping will help “potentially lower health care costs by eliminating unnecessary services,” said Piskac. “Managed care is only as good as the rules used to manage the care.”

Besides capping, according to Piskac, Medicare promises providers a bonus payment if the amount they spend on patient care is less than what the government predicts. This unfortunately could lead providers to skip necessary treatments to receive a higher bonus, risking the patient’s health. Other drawbacks include difficulty accessing providers on weekends and evenings, especially in urban areas. However, due to fierce competition for market share under this model, patients can expect lower costs along with higher quality, he said.

Bundled Payments Are Designed to Reduce Duplication but Carry Financial Risks

Bundled payments, Piskac explained, incentivize health care providers in Medicare to “coordinate care” to avoid redundant services, such as duplicate tests. This means fewer services and presumably, lower health care costs.

This model gives providers incentives to keep costs due to complications and repetitive testing to a minimum. Providers are also paid a bonus for lowering treatment costs. Nevertheless, bundled payments may lead providers to avoid patients who are likely to have complications, stated Piskac. This could lead to more—and repetitive—testing, undermining one of the model’s primary goals. In some circumstances though, according to Piskac, high-risk patients may provide for higher bundled service costs, incentivizing health care providers to take on these patients for more pay.

Value-Based: The Ultimate Health Care Payment Model, but How Do We Get There?

The value-based Medicare payment model, Piskac said, involves measuring the quality of services health care providers deliver. Better-quality care allows for a healthier patient who then requires fewer health care services. There is also a chance for the provider to be reimbursed if the total payment for the services was not used in full.

“Value-based payment systems recognize that decreasing the cost of health care requires improving the health of the population. So, preventive services and lifestyle modification become prioritized with this approach,” Piskac stated.

A healthier population means less health care spending. This payment model requires the cost of care be tied directly to its quality. In theory, Piskac said, value-based care is appealing yet challenging to put into practice. He explained it would be necessary to measure the quality of treatment, but establishing valid ways to do this would be difficult. And as under the bundled payments model, Piskac noted, health care providers might ensure their treatment quality meets these standards by avoiding complicated and sick patients.

Next Month: Transitioning to Value-Based Payment

In the final installment of this three-part series, Piskac will discuss the keys to transitioning from Fee-For-Service to a value-based payment model. Plus, we’ll explore which model is the most vulnerable.

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About the author:

Photo of Dr. Tony PiskacDr. 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, LLC (Strategic) and in helping fellow providers. His skills have been used to improve processes and efficiencies within Strategic, and to provide oversight for Centers for Medicare & Medicaid Services (CMS) contracts.

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