About 700 years ago (give or take), a novel healthcare model proliferated in China: village doctors were paid by the villagers when they were well, but received no money when the patients were sick. Patients who fell ill stopped paying until they were better and able to work again.
This is the principle of well care over sick care. It’s very simple in this instance, but it checks many of the boxes for aligning incentives and costs in healthcare: it keeps patients healthy, compensation for doctors is reasonable and paid based on the population under their care, and insurance risk is shared.
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Fast forward to today. While we have managed care, the original intent has been lost in the implementation. Health management organizations (HMOs) have been formed to manage the population they serve, but their uptake has been limited and largely stymied by the dominant fee-for-service model under which healthcare is delivered today.
Meanwhile, everyone, and I mean everyone, is complaining about costs. Patients complain about unaffordable healthcare, physicians and clinicians complain about falling reimbursement and loss of income, hospitals complain about rising costs and lack of resources, and payers and insurers complain about excess charges and waste. Ultimately, we are all patients in this system, and the current trajectory is satisfying fewer and fewer people.
Ken Steele is a partner with ECG Management Consultants and an expert on managed care. On this 50th episode, he talks about the reasons why our healthcare system still struggles to achieve the promise of value-based care and why we’re all responsible for finding solutions. Below are a few excerpts.
The long road away from fee-for-service.
“I don’t think we’ve met our goal. It’s a long runway, and we’ve been struggling to get to a place where there’s more emphasis on value-based care. HMOs were formed to manage the health of a population, and that really hasn’t panned out in a lot of markets. We’ve seen fee-for-service continue as the dominant form of payment, which is not an incentive to reduce costs or improve quality. So it’s been a long journey, and I’m not sure we’re ever going to get there because healthcare was built on fee-for-service. It’s really hard to break the reliance on fee-for-service payments.”
Cooperation is needed for the future.
“Hospitals right now are really struggling financially with the pandemic. There’s a shortage of hospitals and nurses. Many hospitals still aren’t doing elective services. So I think what we’re facing in the future is a high demand for services and reduced access. And that’s a long-term, systemic issue that health plans and providers are going to have to deal with. They’re going to have to work together to reinvest in healthcare. We’re just not seeing payers reinvesting in healthcare. We’re seeing record profits, and we’re seeing hospitals struggle with double-digit increases because they have travelers, increased supply costs, and supply chain issues. They’re trying to balance that on a day-to-day basis.”
The contentious relationship between payers and providers.
“Over 20% of healthcare cost goes toward administration, typically on the health plan side. It creates a lot of friction. There are just different goals there. The health plans look at hospitals as not being terribly efficient, so they’re creating more and more burdens and barriers to get authorization and to get good payments. At hospitals, they just believe on a day-to-day basis that they’re doing the best thing they can for the patients. [The parties] don’t trust each other. Health plans are very profit driven. They do some things that certainly benefit the population, but they don’t deliver healthcare. If it’s midnight on Christmas Eve, you’re not calling your health plan to find a nurse or doctor—you’re going to the hospital ER.”
About the Show
The US spends more on healthcare per capita than any other country on the planet. So why don’t we have superior outcomes? Why haven’t the principles of capitalism prevailed? And why do American consumers have so much trouble accessing and paying for healthcare? Dive into these and other issues on Healthcare Upside/Down with ECG principal Dr. Nick van Terheyden and guest panelists as they discuss the upsides and downsides of healthcare in the US, and how to make the system work for everyone.
This article was originally published on the ECG Management Consulting blog and is republished here with permission.