Rebuilding the U.S. Healthcare Delivery System
Last week, we discussed our expectation that the 40 to 50 year old, encounter-based payment model or as we have called it today the “Fee For Service” (FFS) payment model, may not be dead; however, it is certainly on its last gasp. We also noted how providers can be compensated for patient care, even when they don’t see them. In case you missed last week’s discussion, be sure to give it a read: The 21st Century Renaissance: A New Healthcare in the United States (Part 4)
Today, we will expand on “value-based care.” First, I want to share with you a short video that was posted by Modern Healthcare in which they interviewed the Executive Vice President of Geisinger, a multibillion-dollar healthcare system based in the Northeast United States. You may not be able to get through the “pay wall,” so I will tell you part of what was said. In the new COVID world, it was commented that, “that organizations must use these unprecedented times to embrace true disruption and fundamentally change how the industry is organized.”
The key points were:
- Adopting material expansion of virtual care and “virtual everything”
- The need to help patients connect to providers via several channels
- Managing chronic diseases in a different way using remote care
- The issues with telehealth parity
- “The fee for service system does not work”
- “Forging ahead on prospective value-based payment”
- Trying to expand PCPs to a capitated model
- Accelerated attention on value-based care – “if not now – when?”
- Providing unconnected care and outcome to pay for visit
The remarkable part about this conversation was 21 years ago, I was trying to convince a hospital CEO to contract with my company to provide care to patients in North Miami, Florida, on what we would call today, a subscription-based or even a pre-payment model. I don’t remember all the details however, the discussion was that we would pay for a certain number of hospital beds (whether we use them or not ) and we would have (partially) fixed costs for every day of occupancy, regardless of the actual condition of the patient. The goal was to efficiently manage our costs by “laying off the risk,” in part of the care given by the actual provider, which in this case would be the hospital. We would still pay for doctors, other specialists and drugs; however, this would only include the hospital room, basic services and diagnostics they had on-site.
This was a complex and revolutionary concept, yet the hospital was not even willing to consider. We guaranteed them that we would pay them a monthly allocation (even offered to pay in advance), for a certain amount of base hospital beds, whether we use them or not. Effectively, it was a form of reinsurance for us and a guaranteed income for the hospital. Further, it assured the hospital that from a selection of over 25 hospitals in the region, we would make every effort to send our patients to that now “preferred” hospital. Today, that model may in fact have a much better reception, based on the webinar I noted above, and the changes and adaptations in the hospital systems over the past two (2) decades. I can tell you that hospital systems that owned their own insurance company were buffered from major adjustments, or lay-offs because their insurance premiums added to revenues and lower hospital admission, which reduced their medical expense ratio. In nearly all cases, these hospitals were always financially ahead.
Beyond the primary care capitation (discussed in previous blog), there is also a much more dynamic payment method for more sophisticated organizations – the traditional small group of primary care physicians can directly adapt due to the enhanced patient “touch” and care it requires. That form of compensation is generally referred to as either partial risk or global risk compensation. Under that structure, insurance companies contract with a sophisticated care management company. From there, they effectively allocate credits to the management company for a percentage of the premium, based off the monthly payments received by the insurance company, all from a federal or state health insurance program such as Medicare and Medicaid. The insurance company takes a top off the management fee that includes marketing, network negotiations, pharmacy benefit managers, medical supervision, compliance, profit and other regulatory costs. Then it calculates the actual medical care provided, usually referred to as either a medical benefit ratio (MBR) or a medical loss ratio (MLR) allowance, as negotiated by contract. Basically, this means that the insurance company has transferred a portion of the direct medical care to an organization, much like I tried to do with the hospital in the example above.
In this model, the medical group has an ethical, as well as financial incentive, to keep the patient as healthy as possible, for as long as possible. In our opinion, this aligns with the quality of health and cost-benefit of the insurance company, the provider and the patient. In fact, I’ve felt so strongly about this model, that I have encouraged my parents and my friends, (those who that qualify for Medicare) to seriously consider the program, Medicare Advantage, versus traditional fee-for-service, Medicare – if they have concerns for both healthcare cost and medical coordination. Under Medicare Advantage, the actual cost to members is materially lower (sometimes near zero cost) than Medicare, who requires a 20% co-payment both including physician, outpatient and inpatient care.
We believe that one of the long-lasting effects of COVID-19 will be the acceleration of managed care in both Medicare and Medicaid. Today, the Medicare Advantage penetration rate is about one third of all Medicare beneficiaries. Expect that number to be closer to 50% in the next few years and probably 90% by the end of the decade. If we are right, it will require a material transformation in how both primary care physicians and specialists interact with the growing number of Medicare beneficiaries over the next decade.
-Noel J. Guillama, President
As we have been doing in this series, we share a small collection of RECENT headlines that go beyond the articles we have shared in previous blogs:
COVID-19 reshapes healthcare utilization
COVID-19 may end up boosting value-based payment
NHS examines new deal with private hospitals to clear waiting lists – Extension to the arrangement to access facilities during pandemic could have far-reaching effect on health sector