Reform in the Trenches

This article appears in the June 2012 issue of HealthLeaders magazine.

One of the bigger problems with fee-for-service reimbursement is that it virtually guarantees little accountability for results. Largely for that reason, its cost profile has proved unsustainable, and the clear push has been to incorporate value heavily into the calculus of how healthcare providers will be paid in the future.

Government payers, on a limited basis, are working to reform the model, but participation is quite competitive and extremely restrictive. That's why hospitals and health systems that are not involved in some of the government-sponsored ACO or shared savings constructs must pursue innovation through the commercial market. In some cases, commercial payers are more than happy to accommodate, given the mandate from their customers—employers—to cut costs. But negotiations can be tricky and require a new level of trust (and verification). With these new contractual constructs, hospitals, health systems, and physician groups are working more closely than ever with payers to cut costs and improve quality. But many experts are skeptical of payer-driven plans.

"Many of these are almost pilot programs," says John Keith, a Philadelphia-based principal with Deloitte LLC, an auditing, consulting, and financial advisory firm. Those can be valuable, he says, but only if the hospital or other provider partner in the deal is careful to develop its own definition of value and how to arrive at it. Otherwise multiple pilot programs with different motivations can overlap and become hindrances to quality care. "You need to start to push consistency," he says. "Health systems are not necessarily initiating this and that is an issue, depending on what the health plan is trying to accomplish. You can't get scale on the investments if you can't apply them broadly."

Two of the more intriguing contracts are beginning this summer in Southern California and in central Missouri.