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Where Value-Based Purchasing is Still Nascent

Philip Betbeze, for HealthLeaders Media, June 20, 2014

HLM: What about going direct-to-employer with your offerings?

Schnieders: That's one of the things we're talking about, but you have to have the right legal model—a clinically integrated network. Our new partner, Alegent Creighton Health, which is also part of CHI, already has that designation, so we are moving rapidly toward establishing a chapter of that in Kearney.

We have to prove to regulators and payers that we are clinically integrated. That takes time. But at that point, you can go directly to employers and do exactly what you're suggesting. We don't have large employers, but we have lots with 200–500 employees. That's certainly something we can handle and it would give us an opportunity to pilot, experiment and gather data.

HLM: Is cost shifting (whereby hospitals subsidize money-losing services and payers with higher rates from commercial payers) viable anymore?

Schnieders: It's not entirely dead, but with the volume-based model, the dominant payer is where we would shift. If they're saying they won't do it; they're increasing utilization review, and implementing preauthorization to decrease utilization once they are in the hospital or outpatient, it certainly cuts down on the opportunity.

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2 comments on "Where Value-Based Purchasing is Still Nascent"


Bob Sigmond (6/23/2014 at 2:45 PM)
In my earlier comment, the "INVALID" word is "create" or "set up" Any reactions? Right on! Bob

Bob Sigmond (6/23/2014 at 11:43 AM)
Another approach that Michael Schneider might consider for moving from volume to value with a single payer to the hospital, calls for no immediate change in how all sources of income make their payments. Michael should [INVALID] a subsidiary [independent of the hospitals he manages] to [1] take over the entire billing and collection processes and staff from the hospitals, and [2] guarantee to pay each hospital a monthly check, based on the total income projected in an annual collaborative budget for the forthcoming year. An amount equal to the projected budgeted income would be paid to the new subsidiary in advance of each month. This single payer innovation would maintain [for the time being] the processes of charging all sources of payment for the hospital's services on the basis of fees-for-service or existing contracts, but not paying any hospital any money on the basis of fees- for-service. This single payer approach is like a dream come true for those managing hospitals who can effectively manage an annual budget: [1] no more uncompensated care patients since all are paid for, [2] no more worries about annual deficits, [3] no more unpleasant dealing with difficult third party payers and patients, [4] no more anti-social incentives that always go with being paid on the basis of fee-for-service. Also, with this change, it is much easier for Mr. Schnieder to increase the efficiency of the collection processes and reduce the cost of collections while probably increasing the amount of collections. Finally, this approach involves no change whatsoever in relation to the marketplace, as nothing changes for third party payers or patients or any other sources of income. This new arrangement depends on a level of trust between the hospital and the new subsidiary, based on a carefully designed contract between the two collaborating entities which Mr. Schneider controls. This contract should include creation of a jointly managed fund that receives all the money that is included in the hospital annual budgets for projected income. At the end of each year, the amount of any negative net income is paid to the new subsidiary and any positive net income remains in the fund for protection in future years, or is used for collaborative capital expenditures by the contracting hospital. Representatives of the two collaborating entities should meet monthly to review budget results and to make immediate adjustments in the budget, when necessary. Does anyone see any reason why this arrangement would not work very well, with a single payer to the hospital no longer paying any fees-for-service, while it is being paid as usual from multiple sources of income? For more information, contact me at 215-561-5730 or bob@sigmond.us