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Health care reform could include “warranties” on treatments

Editor’s Note: PricewaterhouseCoopers is conducting a series of five seminars during October and November about health care reform. This is the second in the series covered by Amy Gillentine. The series will continue through Nov. 27.
Health care might soon come with a 30-day “warranty” — with doctors getting paid more if their patients are not readmitted to the hospital or if they keep treatment costs down while maintaining high-quality care.
The industry is moving toward a quality-based, pay-for-performance system and away from paying for volume without regard to the outcome.
The second in a five-part series by PricewaterhouseCoopers concentrating on health care reform focused on payments to providers and hospitals, and the active role that doctors will have to play to receive reimbursements.
Some regulatory changes are going to be seen regardless of what Congress decides, said Kelly Barnes, a partner in PWC’s health care division.
“We’re examining where we are as we wind through the process,” she said. “But Medicare is already moving from its current system, and insurance companies usually follow them.”
Instead of getting paid every time they see a patient or for every procedure performed, doctors and hospitals will be paid based on the quality of care and whether they keep costs low.
The Centers for Medicare and Medicaid Services has already decided not to pay for certain “never” events — accidents and complications that should not happen during the course of treatment — and several private insurers have followed suit. CMS also will not pay for certain hospital-acquired illnesses, such as Methicillin-resistant Staphylococcus aureus, with insurance companies also following their lead.
“So it makes sense that the payment structure will be different, and that the burden will be on the provider,” said Brett Hickman, a partner on PWC’s health industry advisory board. “We know 85 percent of health care costs stem from chronic illnesses, so paying to manage them over time makes sense.”
Currently, CMS is moving toward a reward-based system — doctors get bonuses to keep costs down and provide quality health care.
“But in the warranty business, it will depend on the value provided over an extended period of time,” he said.

Bundled payments

But that is not the only change looming on the horizon. Instead of individual payments to doctors, specialists or hospitals — only one payment will be made, and each provider will have to negotiate for his or her share of the money.
“They’ve done some of this on a pilot basis for cardiac and orthopedic care — two very high cost DRGs (diagnosis related group),” Hickman said. “And if you bundle the payments, you save about 6 percent on costs. And with the extended 30-day or 90-day warranty, payments could be even lower.”
The bill introduced by Sen. Max Baucus — the one that health care analysts say has the greatest chance to pass — is structured around Medicaid making the payment changes first.
“The biggest challenge of course is to organize the care,” Hickman said. “Doctors, hospitals, specialists (and) insurance companies are going to have to collaborate in a real, meaningful way. They are going to have to eliminate deficiencies in the system and propose solutions — a combination of hospitals, primary care doctors and specialists — an integrated delivery system.”
In the new formula, spending and performance will equal payments, Hickman said.
“Of course, in the initial years, the shared savings will be very small,” he said. “But in the future, it will grow exponentially as expenditures equal quality and cost.”
In the best case scenario, doctors who can hold costs down while providing high quality care will earn more money and have the potential to participate in shared savings bonuses. Those who can’t — the worst case scenario — will face a penalty. Doctors with high costs and low quality will pay fines for their mistake.
“There is potential for penalties if the quality is not achieved,” Hickman said.
Payers, such as insurers and Medicare, are integrated into the risk-reward system throughout the process. They will have to take an aggressive stance on services and how they are delivered.
“CMS will no longer be a passive payer,” he said. “They are an active purchaser of the value of care. And they will reward and penalize for performance. It’s not hard to see them take that stance — they have all the data necessary to benchmark every hospital and every doctor in the nation. They’ve been provided the data for years.”
The changes will require cooperation between doctors, hospitals, and insurance companies that doesn’t currently exist.
“The key for success in payment reform is a value-driven system,” Hickman said. “All the groups have to work together to manage the population being cared for, the episodes of care. It’s a data-driven environment, easily shared and managed. You have to manage costs if we want to have a financially viable system.”