Customer asks for performance (beginning October 1, 2012)

On October 1, 2012, the customer (Medicare reimbursement) began demanding performance in addition to paying for services. It now ties higher quality, patient experience and better outcomes to its payments.  The customer (Medicare) began to penalize hospitals up to 2% of their Medicare inpatient revenue if they didn’t rank in the top quadrants for quality metrics and patient satisfaction (“Value Based Purchasing”) and the number of “Readmissions” back to a hospital within 30 days of hospital discharge.

Why Medicare is the Customer

While the patient usually chooses the healthcare provider and receives the services, a good case can be made that the customer is the third party that reimburses for the services. In the United States, 90% of the money that healthcare providers receive for providing services comes from third parties (Medicare, Medicaid, Insurance companies). These third parties determine:

  • Amount – how much the provider gets
  • Reimbursement – the process for providers to get paid
  • Operating Rules – how providers must operate and treat patients
  • Formulary – list of services that get reimbursement

22% all of health care spending in the United States is reimbursed by Medicare.  The highest commercial insurer is United Healthcare which reimburses just 2% of health care spending. The entire United States reimbursement system is primarily based on the rules and fee schedules of Medicare. Insurance companies use this system as the foundation that they then layer custom utilization management and reimbursement amounts into contracts with providers.

Reason for Optimism

While much of the national healthcare discourse is about the new healthcare exchanges and mandates to buy insurance, the new Medicare reimbursement models being developed have flown under the radar. The Customer (Medicare Reimbursement) is beginning to introduce many new reimbursement models for the first time since the current system was developed as a result of the Balanced Budget Act of 1997.

This may explain why Medicare doesn’t reimburse innovative physicians who use text messaging, emails, video conferencing and remote monitoring as they didn’t exist in 1997. Neither did Google (incorporated 1998), the first smart phone (Blackberry 1999), first text message between carriers (1999), online payments (PayPal 2000), Skype (2003) or the iPhone (2007).   The new reimbursement models will also benefit from leveraging Medicare Bluebutton (2012), $79 Android Tablets (2013), Big Data Analytics, free mobile monitoring apps, free cloud-based Electronic Medical Records (EMRs) and access to hospital and physician EMRs (Meaningful Use 2014).

New Performance Reimbursement Programs

The healthcare system will become more efficient, effective and convenient once the ’90s reimbursement model is replaced by patient-centric, value-based and outcome driven reimbursement.  Here are some of the new reimbursement models that are being piloted and developed to achieve the triple aim (cost reduction, quality improvement, better outcomes) that will likely become the law of the land in the next 2 to 3 years:

  • Value – These are mostly penalties for not performing at a level for quality, patient satisfaction, readmissions, hospital acquired conditions and use of electronic medical records.
  • Episode – Paying one fee for an entire acute care episode and all of the services up to 90 days after being discharged. Medicare’s program is Bundled Payments for Care Improvement. Commercial insurers and employers have already implemented bundled payment programs.
  • Population – These are shared savings program for managing the primary care (PCMH) or the overall patient population for a period of time (ACO).  Payments
  • Patient Incentives – Medicare Essential is being evaluated as a way to offer Medicare beneficiaries incentives (lower monthly premiums, lower deductibles, lower co-payments) for beneficiaries to use the new “Episode” and “Population” reimbursement models.
  • Center for Medicare & Medicaid Innovation Center (CMMI) – Funds the development and testing of innovative health care payment and service delivery models.

We have begun the journey from a fee-for-service reimbursement model to a reimbursement system tied to making people better. The best way to reduce cost is to make people better. The key to success for each of these is not just leveraging science and technology, it is to align incentives with the physicians, hospitals, ambulatory services, post acute services and insurance companies.  Patient-centric care and achieving desired outcomes is a team effort and each of the participants play an important role.  We have already seen merging of these stakeholders (i.e., hospital & physicians, hospitals and insurance companies) which will continue during this transition to patient-centric care.