What’s Next for the ’Un-Payment’ System?

The nation's healthcare system has four overarching goals: wellness, high-quality care, access to care, and a stable health system. Most healthcare providers wouldn't argue, however, that there's a fifth goal— getting paid fairly for the care that's given.

Back in the spring, shortly after the Patient Protection Act was signed into law, I spoke with a few folks about some of the effects this legislation might have on hospitals. Not surprisingly, the Healthcare Financial Management Association (HFMA) had already given it plenty of thought.

Tap the brain of nearly any healthcare leader to learn what he or she feels drives cost in the system and they'll likely point to how they are paid. The current methods and incentives for healthcare payment actually "block, rather than support" the nation's healthcare goals, according to a HFMA 2008 Healthcare Payment Reform whitepaper. Further, the report goes on to state that the system doesn't "effectively reward wellness or high quality."

Numerous reports indicate that giving patients greater access to primary care services would help abate the problem through preventive treatments and screening. Many patients, however, cannot afford to maintain the continuous interaction needed to achieve better health, and few healthcare providers are adequately compensated for this type of care.

The Healthcare Reform Act of 2010 attempts to address the wellness issue by providing more coverage to those who cannot generally afford care. But the legislation falls short in the path it takes to compensate providers for their work—using fundamentally the same Medicare processes and fee-for-service.

"Regardless of what Washington [D.C.] changes, healthcare will move away from volume-based payment and to performance-based," said Richard Clarke, HFMA president and CEO in an interview. "We polled financial officers all over the country about what they thought payment reform would look like in five years and over 70% thought that we would be operating under some sort of pay-for-performance."

Payment reform is slow in coming from the government, however, healthcare providers are watching for other avenues to pursue.

"Right now, we're all volume-driven," said James F. Doyle, Senior Vice President & Chief Financial Officer of the 427-bed Elmhurst Memorial Healthcare in Elmhurst, IL. "Our survival depends on getting more market share."

Doyle, who was a member of the HFMA Advisory Council that offered insights for the group's payment reform whitepaper, explained that with a volume-based payment system, healthcare providers that give high-quality, efficient care—thus reducing the volume of patient services needed—are actually rewarded with reduced payments.

Therefore, the current system encourages competition for higher margin services and in some instance oversupply and overuse of services. In essence, lower quality service actually leads to more revenue for providers. Unnecessary or overuse of services also drives up costs for hospitals—creating a poor financial cycle that's difficult to break.

The HFMA whitepaper offers three ways the government and healthcare providers could approach correcting the current payment system to remedy the cost:

1. Condition-specific capitation for preventative services and chronic care. This includes periodic payments to a provider for care management, financial rewards for touting preventative services and financial rewards for defined patient outcomes, plus consumer financial incentives for participating in their care.
2. Episode-of-Care Payment. This includes a healthcare network that receives a global payment or multiple payments to providers for all services a patient needs; payment adjustments for high levels of services as long as outcomes are achieved, and bonuses or payment penalties for providers based on outcomes and satisfaction.
3. Payment to Support Societal Benefit. Includes the payers in a region making payments to teaching hospitals and for research to cover these costs and payers making separate provider payments to cover the cost of uncompensated care.

In the meantime, the government is attempting to find new ways to drive quality while reducing costs. Its latest venture is the Accountable Care Organization (ACO), which is designed to improve clinical outcomes, care processes, and business performance while simultaneously keeping costs low. The Center for Medicare and Medicaid Services says ACOs are mechanisms to organize care and incent shared saving with the intention of "promoting high quality and efficient service ? for Medicare fee-for-service beneficiaries."

To be eligible to participate in an ACO, healthcare provider must be willing to become accountable for the quality, cost, and overall care of the Medicare beneficiaries; they must enter into a minimum three-year agreement; have enough primary care physicians to treat 5,000 beneficiaries, and a have a clinical and management system in place. The efficacy of the ACO program remains to be tested, however, more than a few hospitals nationwide are showing interest in participating.

Payment reform is an ongoing process, however, in its current state many hospitals will continue to lose money and quality will continue to diminish, according to most industry experts. More and more healthcare providers may have to work with payers, the government, and their patients to find an equitable system that pays them for providing high-quality service, and at the same time ensuring that providers don't spend even more to get paid.