Value Based Payment In Health Care

I spent over 5 hours the last 2 days at a medical-legal educational meeting.  One of the big topics discussed was the changes coming in the near future in the health care system.  The largest change, I believe, will be the shift to value based payment.

In the simplest terms, value based payment refers to paying more money for better care.  We already have some elements of value based payment, with Medicare requiring doctors to show that a certain percent of their charts have the patient’s smoking status and medications and vital signs documented.

These bureaucratic and record-keeping requirements are just the beginning.  Rather than just showing that we’re asking the right questions and documenting properly, we’re soon going to be required to prove we’re providing better care.

How do we define “better” care?  Simple.  Less expensive care is better care.

With the development of accountable care organizations, or ACOs, big aggregates of health care decision-makers are going to be receiving insurance premium money directly.  If they can provide good health care to those they insure for less money, they get to keep the difference.  If not, they may go out of business.

On average, the insurance companies know how much it costs to provide health care to a given individual.  So if an ACO in northern Ohio is able to get 100,000 people to enroll, it’s just an actuarial exercise to figure out how much money they need to charge each person.

That ACO not only has people experienced in the insurance industry but also generally includes a hospital system or network (who provides the care, like labs and Xrays and hospital-based care) and a pool of medical providers (who direct the care).  (The ACO system is based on the Kaiser Permanente model of care, by the way.)

Let’s say our ACO gets 100,000 people to enroll and collects their premiums.  If the ACO is able to provide these people good care for 80% of the money they collected, they’re doing great and probably would be able to lower premiums for the next year.  That will make the ACO very attractive and more people will enroll.

(What happens if the ACO gets TOO focused on the bottom line and decides they can save more money by providing crappy care?  Well, the simplest thing that will happen is people won’t re-enroll.  They may also be open to lawsuits, but let’s keep it simple and assume that in the interest of keeping the business open they won’t want to provide crappy care.  It’s a balancing act between saving money and keeping customers happy.)

By keeping health care decisions, implementation and payment under one roof, so to speak, ACOs are able to simplify the care experience for patients.  This makes it easier to experiment with alternative care models like telemedicine or remote monitoring.

Value based payment means sharing the money saved with those who made the decisions that saved the money in the first place.  Doctors, hospitals, pharmacies and others have roles to play in helping to hold down the cost of health care. Profit-sharing arrangements benefit everyone:  doctors and hospitals make more money, customers get lower premiums, and the ACO gets more customers over time.

By finding ways to keep patients healthy, to keep minor problems out of emergency rooms and head off illnesses before patients wind up in the hospital, and by developing innovative ways to help patients manage chronic conditions, ACOs are well positioned to help decrease costs.  And by using market forces (like price, profit and customer experience) to drive changes, this will work much better than top-down legislative changes mandated by the government.

Why are we discussing ACOs and alternative care models and changes in our health care system?  Simple.  We can’t afford the system we have now.  With a growing elderly population and a ballooning national debt, increasing numbers of people receiving health care with government subsidies (through Medicare, Medicaid, the VA, and tax-subsidized exchange plans), our system is broken and must be fixed or our country will go bankrupt.

We have decided as a nation that everyone must have health insurance.  We can debate the pros and cons of Obamacare but it will not be repealed.  It is the law.  Other countries have decided that the best way to provide health insurance to everyone is to have the government provide it (i.e. single payor).

Private industry is America’s strength.  Innovation and pure scrappy entrepreneurship have solved more problems in our country than the government ever could.  I believe this is a very exciting time in American health care.  Lots of people have a gloom-and-doom outlook, but I don’t.

I think America is putting her best and brightest to work on the problem and coming up with a uniquely American solution that reins in the cost of healthcare while it respects American values of independence and autonomy.  This problem will not be solved on Capitol Hill or in the White House.

America gets market forces.  True solutions to the problem of funding health care must be driven by market forces, because as much as the government might wish otherwise, health care is a business like any other.


4 thoughts on “Value Based Payment In Health Care

    • Hi, Mark! Everyone agrees the price of health care is too high. The big question is, how do you reduce costs without hurting quality or rationing care? And how do you do it while respecting American values?

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