Making Margin with the Medical Home

Under healthcare reform, the payment structure will move from fee-for-service to a pay-for-outcome model, such as bundled payments, medical homes, or accountable care organizations. However, the change to a new payment model is going to be a bumpy and expensive one—and few organizations have the margins to lose reimbursement dollars during the transition period. With most providers having little margin to put toward a pilot program, and with an expectation of losing reimbursements once it’s under way, a medical home is unappealing under the current payment system. However, there are pathways to making margin in the medical home.

Although the Patient Protection and Affordable Care Act includes pilot programs for various payment methodologies, there is still a great deal of uncertainty around payment reform. The overarching movement is toward better quality and lower cost of care; that’s something an outcome-based reimbursement environment supports, but the payment system hasn’t caught up. Nationally, Medical home pilot programs are beginning to produce data demonstrating efficacy in terms of the improvement of the patient’s health. Hospitals and health systems are keeping a watchful eye on these pilots, hopeful that these programs can help them address the government’s Medicare directive to reduce readmission rates (though currently, no pilot program has released data showing these results).

“When you look at a hospital like Hackensack University Medical Center, we’re full all the time … and when a patient has to wait for inpatient care, they’re not happy. So, if the medical home could reduce our readmission rates to 3%–4%, that would be equivalent to a bed tower,” says Robert Glenning, executive vice president and CFO at the 745-staffed-bed facility in Hackensack, NJ.

The ability to find a way to earn margin from this model now is essential to position healthcare organizations for the future model of care without sacrificing the bottom line in the process, explains Glenning, a healthcare CFO for nearly 20 years and a former accountant.