The Fee for Service Apocalypse

DennyFlint-smThe Death of Fee for Service and the Value in Value-Based Medicine

By Denny Flint, Sr. Consultant and Director of Business Development for Assistive Coding, LLC

Ok. I admit it. The title is a little shrill. But at the rate physician reimbursement based upon fees for services provided is disappearing in this country, I don’t think it’s that much of a stretch. I have written numerous articles about the push toward diagnosis-based reimbursement and the rapid proliferation of value, evidence, and outcomes based models and how ICD-10 is far superior to ICD-9 as the vessel that carries the data. In talks across the country, in order to set the context for the argument, I really have to start with the basics. Here are definitions you’ll need to know.

Diagnosis Based Reimbursement is any plan in which reimbursement is either entirely or partially based upon the patients’ condition and appears in programs in which supplemental income is available to providers based upon reporting of diagnostic information.

To really understand the death of Fee for Service, you also have to know what the “Value” is in value-based medicine and what is the “Evidence” in evidence-based medicine.

  • Value Based Medicine – Refers to the use of data, specifically meaningful use data, to determine if the basic requirements of good patient care and thus the value is being delivered by the physician
  • Evidence Based Medicine – Refers to the use of Outcomes data and treatment data to provide evidence as to the effectiveness of care and various treatment protocols
  • Outcomes Measurement and the quantification of good care requirements are used to help determine, justify, and set reimbursement levels for individual patients in a Diagnosis Based Reimbursement environment

What is driving us away from Fee for Service and toward this new paradigm? Simply stated, the current model is unsustainable. The US has the most expensive care in the world. Baby Boomers are at Medicare age and paying for their care at these levels is not possible. The Affordable Care Act has altered the way insurance plans do business. And this is not just about Medicare Advantage. The ACA mandates the adoption of “shared risk” for all commercial payers where risk is shared with providers expected to contain costs while proving effective care. With the ACA we have: more covered services, no preexisting conditions, lower premiums for uninsured (capped in Health Insurance Exchanges), and the pressure is causing many large employers to drop health care benefits for their employees and put them in the HIE’s at lower cost.

Why is the cost of care so high (and increasing) while physicians are being paid less and less? Fee for Service! The Fee-for-Service paradigm is designed to drive up cost. The more services, procedures, tests, prescriptions, visits, and devices that are utilized the more money is made. All elements of the healthcare system are financially motivated and incentivized to do more and charge more. Physicians have no incentive to keep costs down in this paradigm. The DX based paradigm reverses this trend.

With a diagnosis-based reimbursement model, we evaluate what is wrong with a patient and determine the reasonable cost to treat the condition(s). That amount is paid to the providers and if they can achieve the outcome for less they retain the difference. In this paradigm the financial incentive is to keep patients healthy while providing less care. Outcomes, value based, and evidence based data help to determine that care standards are being maintained. Physicians are rewarded for their success in improving outcomes and/or reducing costs. But in order to do that, they have to embrace the “LESS IS MORE” mindset. This is completely foreign to most providers. When the primary financial incentive is keeping patients healthy, providers will begin to look at priorities differently.

Before you say, “This won’t happen to us,” consider these statistics. In 2011, outside of Kaiser, we had no patients in diagnosis-based reimbursement models. In January 2013, 15% of all insured lives were covered within these models. In 2013, there were more lives covered under dx-based reimbursement models than by Medicare. By the end of 2014, government health statisticians predict that number will climb to over 30%. According to a recent study by Park Associates, ACOs will account for 130 million lives. There are currently 428 Accountable Care Organizations nationwide that appear in all states but 2. Most are physician-owned v. hospital or insurance plan owned. With the increasing number of ACOs, there are now more than 20 million ACO-covered lives, according to the Growth and Dispersion of Accountable Care Organizations June 2014 Update from Leavitt Partners. Patient Centered Medical Home, Hierarchical Condition Categories, Chronic Disease Burden Management and Shared Risk models now occur in all states. The future is now.

The diagnosis data you report today lays the foundation for your reimbursement tomorrow. Reporting unspecific code data that lacks detail will not support the Risk Adjustment Factors we need to compute sufficient dollars to take care of our patients. This is happening now. Your main focus therefore needs to be clinical documentation improvement and detailed coding that meet the HCC requirements for specificity, linkage, and calendar year reporting requirements. This is your “public face” to the outside world and is made even more challenging with ICD-9 as our only ability to create detailed data. ICD-10 will make it easier to accurately assess a population’s risk and the requisite dollars to care for that risk. So why all the push-back? Yes, the implementation of ICD-10 will be a hassle. But given the apocalypse of Fee for Service and the advent of all these new diagnosis driven models, ICD-10 represents our next best hope for taking back decisions for care and financial modeling that have been in the hands of the insurance industry for years.

About the Author:  Denny Flint is Sr. Consultant and Director of Business Development for Assistive Coding, LLC, a member of The Pinnacle Group family of physician financial, education, strategic planning, and coding suite of services. He has presented over 375 ICD-10 workshops in the past three years and is part of the ICD-10 CO and LA Training Coalitions. He sits on the editorial board of ICD-10 Monitor and has been a frequent guest on Talk Ten Tuesday.
He can be reached at or at 970 390 8970.