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

Karen Minich-Pourshadi, for HealthLeaders Media, July 19, 2010

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.

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