Population Health Insights

Fee-for-Service Treats the Symptoms, Not the Disease

The fee-for-service (FFS) health care reimbursement model has long been criticized for obstructing quality and blamed as the culprit behind the exorbitant cost of care in this country. Although the Affordable Care Act has made the transition to value-based medicine a priority, according to Kevon Kothari, Director of Corporate Development for Care Innovations, most organizations are still only “dipping their toes into the waters” of the value-based model (VBM).

Kothari, along with other health care industry experts, believe the inflexible adherence to fee-for-service incentives is holding both providers and patients back from experiencing a revolutionary shift in our country’s approach to patient management. In Part 1 of our series on the transition from FFS to value-based care, we’ll examine how FFS hinders acute patient outcomes and what an alternative approach can offer.

fee_for_serviceFFS and the Economics of Encounters

In 1992, Congress introduced the Medicare Fee Schedule, which placed relative values upon itemized procedures based on the amount of time, effort, skill, and stress levels providers expended. Private insurers soon followed suit. An economic model was introduced that prioritized quantity of procedures over quality of care.

Today, there’s a billing code for each transaction between patient and caregiver: from consultations, blood tests, and throat cultures to every minutia of an organ transplant; each encounter has a cost attached to it. Once the patient has left the clinical setting, encounters--and, therefore, opportunities for profit--end. There’s little incentive to provide preventative care. As a result, providers have thrived off maximizing the number of services they can perform upon patients while they’re sick and have little invested in keeping patients well.

The FFS Version of Patient Management

In addition to a lack of investment in preventative care, the fee-for-service model provides minimal support for patients to transition from clinical care to self-management. When a patient is discharged from a hospital, they’re given little more than generic self-care instructions on a print-out with little to no follow-up by the caregiver.

This is because caregivers profit off of repeat visits. Kevon Kothari identifies the typical patient management scenario in the fee-for-service model as follows:

“Today, in a fee-for-service world, the best possible outcome [for the hospital] is to have a patient come back in 31 days because [the hospital] can re-admit that patient and re-service[s] that patient and gets another fee for that patient. So the economic incentive is to give them the minimum amount of coverage necessary to keep them out of the hospital for 30 days. There’s a dis-incentive for actual patient management outside of the hospital setting primarily because [the patient in the hospital] can continue to generate fees over and over again.”

Doctors want to provide great care, Kothari adds. But given the fragmentation that exists in delivering care in the hospital setting, doctors lack the ability to manage patients during their life-cycle of care.

The Incentives of Value-Based Medicine (VBM)

In contrast to fee-for-service health care, value-based medicine monetizes outcomes over transactions. In a more holistic approach to patient management, Kothari explains, caregivers are assigned a fixed fee for specific populations or illnesses instead of specific procedures. The delivery of services after the point of acute care becomes a bigger economic opportunity. Two common VBM reimbursement models are bundled payments and capitation.

With capitation, caregivers are paid a lump sum per patient regardless of how many encounters they have with an individual patient. The caregiver assumes some financial risk if their patients require return visits, thus preventative care and patient self-management becomes economically advantageous.

Bundled payments, which are considered to be the middle ground between fee-for service and capitation, reimburse caregivers for each episode of care. For example, if a patient gets a knee replacement, the caregiver is paid a flat fee for the entire scope of the procedure from consultation to outcome; if the patient has complications related to the knee replacement surgery, the caregiver cannot charge for additional services. The caregiver can avoid absorbing the costs of re-admission by providing low-cost follow-up care tools such as discharge planning products.

The Transition Begins

Considering the positive outcomes that VBM can offer, why haven’t more caregivers adopted it? One reason leaves a bitter taste for profit-seeking providers: hospitals will be paid less to deliver more comprehensive care. However, according to the Harvard Business Review, value-based medical care is inevitable, and that’s a good thing:

“Whether providers like it or not, health care is evolving from a proficiency-based art to a data-driven science, from freelance physicians to hospital-employed physicians, from one-size-fits-all community hospitals to vast hospital networks organized around centers of excellence. Each step in this process leads to another.”

While the majority of caregivers have yet to embrace VBM, there are some pockets of the country that have fully integrated holistic patient management. In an upcoming article, we’ll discuss what a value-based health care community looks like and what the outcomes have been.

According to Kevon Kothari, the transition to value-based medicine is slowly taking hold among health care professionals. Currently, “the distribution of payment is 70 percent fee-for-service and 30 percent value-based.

”Organizations are changing their approach from trying to bill patients for more and more and beginning to ask themselves “how can we do this right?”

As we further explore the shift from fee-for-service to value-based medicine in upcoming articles, we’ll discover not only how this holistic health care model changes the business of medicine, but also how it affects the innovation of patient management technology, and most importantly, the way it impacts the lives of populations the value-based model serves.