Sick Care to a Health Care System: No, it is not Magic, but it won't be easy

Our high-cost sick care system did not just evolve by magic.

As discussed in my blog titled, "Healthcare Memory Lane" a key lesson learned from history was that a healthcare system is shaped by "what you pay for" and "how you pay for it."

Historically, the "what you pay for" has been focused on the "after event," that is, after you are sick, after you have the heart attack, after you have arrived in the emergency room, after you have been identified with stage 4 cancer. I think you get the point.

Historically, the "how you pay for it" has been fee-for-service based, that is, the more you do the more you make (self-interest). Is the picture becoming clearer?

Finally, adding a finishing touch to this sickly historical scenario, the purchasing decision-maker, the consumer, is unaware of the cost and quality differences between healthcare providers and services rendered (asymmetric information) and, in fact, in most cases, doesn't even care because someone else is paying the majority of the bill (employer, Medicare, Medicaid) (moral hazard). See, no magic in this storyline, just painful reality.

So what does all of the above lead to?

You got it, the medical arms race that exists today.

So how do we switch the plot of this sickly scenario to come out with a happy ending, that is, a healthier society?

We need to first start with the "what you pay for" and "how you pay for it."

The "what you pay for" needs to focus on keeping people healthy and the "how you pay for it" needs to provide rewards, along with accountability, related to services provided in keeping people healthy as well as in the provision of value-based care.

In order to have that happy ending, we cannot stop here. We also need to ensure that our healthcare services are being provided in an optimal manner in order to conserve our societal resources.

We then need to add to this scenario, cost and quality transparency as well as some form of lifestyle and financial accountability on the part of the consumer of care. Sorry, consumers, you need to be play a role in achieving a happier and healthier storyline ending.

The "how you pay for it." Why must there be both risk and rewards embedded in a payment system:

The above picture may not have been the best in illustrating the risk and reward payment scenario, but it does send a powerful message. Some form of financial accountability and risk needs to be incorporated in our payment systems or the focus will only be on the cheese (money), and there would be no real incentive to address the long-standing structural issues on the cost side of the equation.

When you compare fee-for-service vs. value-based or some form of capitation, you have a different array of incentives. As noted above, fee-for-service incents over-utilization which not only adversely affects healthcare costs, but also quality outcomes.

Value-based care models change financial incentives to focus on value by rewarding better outcomes and lower spending.

Capitation is the Cadillac of payment methodologies since its primary financial incentive is to keep people healthy. As I have stated in prior blogs, I believe that capitation in some forms (or premium sharing in joint venture with payers) will be a key catalyst in shaping the winners in this new world of healthcare. These risk-based payment systems would then foster an environment of health and prevention as a key to profitability for providers vs. the current system that incents increased utilization of resources.

Capitation and primary care:

Capitation will also enhance the role of primary care in our society. Primary care is the centerpiece in a capitated environment. Since the financial success of an organization will result from keeping people healthy vs. that of our historical sick care system, the primary care provider will become the captain of the ship, which is what they always should have been.

Capitation: 1990s's

If capitation is the Cadillac of payment methodologies, why has it not become the dominant method of reimbursement for our providers of care?

While capitation in different forms is still common on the West Coast, it is less common in other parts of the country. Many providers still remember their ill-fated experiences with capitation in the 1990s, and they are reluctant to go down that road again.

As discussed in my blog titled, "For-profit healthcare: Let the race begin": The 1990s was a disruptive time in healthcare especially as it related to onslaught of for-profit healthcare entities invading the world of non-profit healthcare.

A by-product of these events was the increased focus on capitation as a payment methodology. Providers of care who were anxious to both survive and flourish during these disruptive times were willing to take on risk-based capitation financial arrangements with payers that many times ended badly. A combination of inexperienced managers, lack of sophisticated IT support and a lack of payer collaboration was a recipe for disaster.

As they say, "We have come a long way, Baby" (maybe I got that wrong), but in today's environment we have more experienced managers, we have seen some great advances in IT support and there is a recognition by all parties that there needs to be provider-payer collaboration.

Knocking down the walls and silos in healthcare:

Those providers that embrace risk/value-based payment methodologies such as capitation will take a giant step in their evolution to becoming a value-based organization. The quickest and best way to break down the silos that have existed forever in healthcare is to embrace payment systems that reward providers for doing so.

As I stated in my second blog on social determinants of health, we need to unleash the power of "self-interest" through payment systems that are risk/value-based. As long as providers are predominately paid under a fee-for-service system, we will continue to have a "sick care" system.

Competition:

Nothing like competition to bring out the best in someone! Even someone like me enjoys a competitive basketball game that forces me to play to my limits. Although at my age, my limits are becoming too apparent.

So too, we would have a healthier society with more affordable healthcare if we had more of a competitive marketplace.

What has limited our ability to foster a competitive marketplace in healthcare? While there are many factors at a national and local level, the two key factors impacting the demand side have been a lack of cost and quality transparency in healthcare and an engaged purchaser of healthcare services.

There are also factors impacting the supply side of healthcare that have adversely impacted competition which we will address further in a future blog. While some of these supply side restrictions still exist, they are under greater scrutiny in today's environment.

This increased focus on allowing competitive forces to work in healthcare is the result of the transition from passive purchasers of healthcare services

to active purchasers of healthcare services:

We have been seeing a transition to active purchasers of healthcare services over the last five years, and that trend will continue. Medicare Advantage (third parties enter into risk arrangement with CMS), Medicaid Managed Care (third parties enter into risk arrangements with states), self-insured employers (they carry the financial risk) and consumers with Health Savings Accounts (HSAs) (they are now spending their own money), are all examples of active purchasers.

All of these stakeholders have a vested self-interest to be active purchasers demanding cost and quality transparency and value in a competitive marketplace. Ultimately, these active purchasers are the catalyst for the disruption that we are seeing in healthcare today and the reason why for-profits are returning to the marketplace (see my blog titled, "For-profit healthcare: Let the race begin").

Social determinants of health and the role of capitation

Finally, as noted in my blog titled, "The social determinants of health, can we reach for the stars," capitation and value-based purchasing also play a key role in addressing the social determinants of health.

As I noted in that blog, the tie-in between value-based purchasing and capitation in some form provides the appropriate incentives to ensure that social determinants of health are being addressed in a cost-effective manner and quality services are being delivered.

As I also noted in that blog above on social determinants of health, I agree that even though a non-profit Community Based Organization (CBO) may not be capable of assuming financial risk, there must still be clear accountabilities on the part of the CBO related to both outcomes and cost-efficiencies that would be tied to financial incentives.

I also believe that same accountability for results and incentives for efficiencies must be applied to all non-profits, no matter the size, that play a role in addressing the social determinants of health.

Individual engagement cannot be overlooked

Finally, a truly healthier society requires individual engagement. There is no free ride. We should not have a mind-set, albeit altruistically based, that leaves out personal responsibility for individuals own and their families' health. We cannot afford to have an enabled society and we are doing no favors for individuals by insulating them from their own bad lifestyle decisions.

I will expand further on this issue in future blogs, but this is why it is important at an early age in our homes and our schools systems to focus on the importance of healthy lifestyles and nutrition.

Personal accountability also plays a critical role in the evolution of our payment systems to those that are risk/value-based. In this new world of provider accountability for good outcomes, patients play a critical role in their own health and they need to play an active role in collaboration with the providers of care to ensure that it happens.

Concluding comments:

Our sick care system represents approximately 17% of our gross domestic product. What one group may call healthcare expenses another group may call healthcare revenue. Our sick care system is well entrenched and has a significant impact on our economy (jobs, etc.). As in any transition that impacts the status quo, this evolution from a sick care system to a healthcare system will not be easy. There will be major resistance.

While this journey will be difficult, the rewards to our society will clearly make it worthwhile. Because our sick care system is so entrenched, the only way we can effectively pursue a path to better health is through an enlightened and committed society. This will require stakeholders at all levels sounding the cry for change, including employers, consumer groups, media and true leaders in the healthcare and political world.

Thomas Campanella is the director of the Health Care MBA and an associate professor of health economics at Baldwin Wallace University near Cleveland, Ohio.

If you are interested in receiving a monthly summary of all of my healthcare blogs, you can respond to me on LinkedIn or e-mail Tom Campanella (tcamp@bw.edu) with your contact information.

Source of pictures: pixabay.com & pexels.com