Modern Healthcare finance reporter Tara Bannow and hospital operations reporter Alex Kacik talk about why fee-for-service payment is at odds with population health efforts.
Beyond the Byline: How fee-for-service can mute population health gains
Alex Kacik: Hello and welcome back to Modern Healthcare's Beyond the Byline, where we offer a behind the scenes look into our reporting. I'm your host, Alex Kacik. I write about hospital operations for Modern Healthcare. Today, I'm talking with Tara Bannow, our finance reporter, to discuss how healthcare is paid for, and how fee-for-service payment can conflict with value-based reimbursement. Tara, let's start with generally how healthcare, at least in the U.S. is paid for. You know, providers are typically reimbursed per procedure they provide, and that as you reported, may lead to some perverse incentives, driving low value and rather high cost care rather than moving in a different direction.
Tara Bannow: Hey Alex. Yeah. So, it's referred to as "fee-for-service" and it's blamed for a lot of the out of control healthcare costs that we're dealing with today. So the more knee surgeries you perform, the more stents you put in, the more money you get. That incentivizes providing more expensive procedures and services, even in cases where it's maybe not as necessary, and that is done rather than dedicating resources toward keeping people healthy, preventing them from needing these pretty expensive procedures. As one of my sources put it in this article, these two strategies are diametrically opposed to one another. One of them is organized around keeping people healthy and not needing stents or having heart attacks.
Alex Kacik: On the value-based care side, that can be so broad, right? There's so many different ranges of alternative payment models. One of which is capitation, where you're paid upfront for a certain set of services, where providers are essentially on the hook if they spend too much or don't hit quality targets and you have bundled payments, which is typically in the orthopedic space with knee and joint replacements. But every time we talk with consultants and hospital execs, they frame value based care as this great tipping point that will transform the industry. But looking at like some reports from Moody's, I don't know why, but they haven't reported on this in their last three reports. They're looking at not-for-profit metrics, not-for-profit hospital metrics, but in 2017, less than 3% of net patient revenue came from capitation and risk based contracting. So what are you noting about the traction of these value-based payment models and are they being used and by whom?
Tara Bannow: Yeah, I think that 3% figure is pretty striking because it's not a lot at all. I think the transition to value-based care has been a lot more talk than action in a lot of cases, I feel like it's a lot of marketing more than anything because you're going to look like a dinosaur if you don't have some kind of value-based care population health program to speak of. The transition has been very slow. In this article, I actually cited a study that found that health systems in 2019 weren't near as far progressed in lung, along the continuum to taking on risk as they expected to be when they took the survey in 2017. The biggest reason that the survey found was that they're just afraid of losing money.
I talked to Don Berwick from the Institute for Healthcare Improvement, and he said "Right now there's not a financial model for keeping people healthy". I think he's right; you've got to be a big system with a lot of resources to be able to even have the margin to dedicate it to something like this. If you're a smaller system operating on a really tight margin, you're going to be protecting that at all costs; and probably not likely to dip your toes into some kind of value based payment arrangement that could potentially cause you to lose money.
Alex Kacik: Tara, in your story, I thought you hit on this really interesting dichotomy. The way that, at least hospital execs, describe it to us is that there are two different tracks within the same system. Some of that is what they've always known; fee for service, paid by procedure and how many you do. And then you have this whole, their group potentially that's working on trying to build out these population health models and, and these other types of payment models that sometimes are harder to measure in terms of impact, and how you gauge those. Some are tied to reimbursements and other specific metrics, but generally, there could be a somewhat of a split. Sometimes those roads don't really convene. So could you speak to that? And, what you found out when you talked with providers about how they're operating both in the fee for service realm, as well as the value based realm?
Tara Bannow: Yeah. You know, this was actually the most surprising thing that I ran into in writing this article. I think originally, my intention was to find out what kind of return on investment are providers getting from these population health initiatives or their value-based care initiatives? How much money are they saving? And I quickly realized that there's just not a lot of data on that. And the reason for that is, to be frank, it's just not happening in a meaningful way. There's just not a lot of data out there. That's because as long as health systems are largely operating under fee for service contracts, which most of them are, then these population health programs are sort of like orphans; they're sort of fighting this uphill battle against a more deeply entrenched strategy of continuing to grow your top line fee for service revenue.
I actually talked to a former CMS official from their Founding Member of the Innovation Center. She was super interesting. She told me some stories from the trenches of trying to get health systems to take on value-based payment programs, and she obviously didn't want me to name the specific systems in these cases. But, in one case the health system insisted that CMS's data showing that they're skilled nursing costs were abnormally high, was wrong. So she dug a little deeper into the data and found that even as its value-based payment efforts were indeed lowering hospital admissions, it was simultaneously adding more nursing home units and putting more patients in them to drive up reimbursement. So you can see this dichotomy; two things happening. At one time they are maybe keeping people healthier and succeeding in that way, but that strategy was at odds with this broader fee for service framework to deliver more care and get more revenue.
Alex Kacik: Yeah. And one of your sources coined it as "I'm your revenue source" versus "I'm your future" when those two sides talk. It's really interesting just to hear that internal dialogue and how they frame all that.
Tara Bannow: Yeah. I guess I figured you're all under the umbrella of the same house system. Everyone must be working together to achieve the same goal, but I guess it's like any organization; you have competing forces that aren't always aligned.
Alex Kacik: Well, part of the problem, I think, is usually these alternative payment models are tied to population health goals. So you're looking at things like transportation, nutrition, housing. But as we've seen, you and I have both reported extensively on community benefit as well. Those types of impacts can be hard to measure. So I imagine you run into a similar issue when you're looking at some of your population health goals that are tied to some of these payment models. When you're trying to say it reduced ED (Emergency Department) admissions by X amount, that usually doesn't come as clear when you're helping someone get into a new house that's more stable or clean. I imagine that also is a roadblock of sorts to getting more people in addition to the worry that they're going to lose money on this, but also, it's hard to quantify the results.
Tara Bannow: Totally. That's a really hard thing to quantify. I think it's also important to note a big part of measuring return on investment from these programs is having a successful data strategy. You have to be able to synthesize a bunch of claims data, electronic medical record data, and some health systems just don't have the capability to do that. So they're the whole industry right now that's cropped up around helping health systems with the data side of population health and value based care. Because if you can't show how much you're saving through these great programs, like getting people into housing and improving their food, then you're going to have a hard time convincing the C-suite that they have to keep paying for it.
Alex Kacik: To help people on that side, it sounds like you found a health system that's helping that transition. They're selling some of their related services as it goes to that data analysis piece and helping them make some inroads on their population health goals.
Tara Bannow: Yeah. Providence, a big system out in Washington state, they actually launched their own subsidiary in 2019 called Ayin. And they're trying to sell their expertise to other providers, insurers, and employers, and helping them beef up their own population health strategies. I think so far Providence said that their subsidiary hasn't contributed meaningfully to their overall finances, but it's still an interesting strategy. It's in its infancy; it could pay off for them. Another form of commercialization is providers who are making equity investments in these population health companies. So ProMedica is one that made an equity investment in its data partner, Socially Determined. So, they're betting on the fact that there's a huge demand for this type of service. And if Socially Determined takes off, then they're going to be able to partner in that process.
Alex Kacik: Yeah. And what do we learn during the pandemic? We saw some holes being poked in that fee for service model. It seems because these non urgent procedures, elective procedures are typically some of the higher earners when it comes to those types of a fee for service payment. So I'm wondering how you think that impacted health systems outlook on fee for service, if it's sustainable? How these national and global disasters can play into that when there are massive shutdowns and what that could do for the transition to other types of payment models?
Tara Bannow: Yeah, I think a lot of people view fee-for-service as the safest bets. And I think what the pandemic showed is that it's actually not the safest bet. It's a riskier proposition. Suddenly a lot of providers found themselves in a situation where their bread and butter, these profitable elective procedures, can't happen for months on end, so revenue went over a cliff. Some experts talk to me about how they feel like this is sort of a wake up call for healthcare providers; that this fee for service strategy is not sustainable any longer. So I think the pandemic showed, more broadly, that having a diversified revenue base is really important. So having these subsidiaries; being able to get your revenue from stuff other than patient care is increasingly important. Health systems that have health insurance plans happened to do a lot better during the pandemic because they had that premium revenue coming in, even as their patient revenue dropped off.
Alex Kacik: Yeah. I saw a report from Oregon that 40 healthcare organizations in the state signed off on. It was a compact sign that they're going to tie 70% of their overall payments to alternative payment models, highlighting capitation as being like one of the preferred ways. So it's interesting to see what the appetite is and where they see more eager to do so and pursue these types of arrangements. But also which ones are working. It seems like part of the issue is here, too. There's not really a silver bullet here, and there's so many different forms and accountable care organizations and orthopedics, like I mentioned, but everything has to be catered and seemingly specifically to that market or that organization. So I guess the point is, it seems like it's catching on in certain markets, but it sounds like you have to really have a good understanding of what your health system is and what they can pursue.
Tara Bannow: It'll be interesting to see what happens in Oregon. I think that's a fascinating thing that they're doing. They've always been a little bit more on the progressive side when it comes to these healthcare initiatives. But I think it's also... Maybe I'm blaming health systems too much because a lot of this depends on whether the insurers that are offering plans in your region, the commercial insurers, are offering value-based care programs? And if they're not, then there's not much you can do in that. You can obviously be involved in Medicare's value-based payment programs, but their hands are a little tied in some way.
Alex Kacik: That's a good point because with Oregon, I know they're a state run system that does most of the Medicare and Medicaid; they signed onto that too. So it needs to be a two-way street, definitely. You wrote that none of this is to suggest that building a strong population health competency isn't worth the time and resources. Why is that?
Tara Bannow: Yeah, that's a good point because I don't want the takeaway message from this conversation to be that population health is a waste of time. It's actually quite the opposite. I think there are a lot of reasons that providers should be doing this right now. First and foremost, you're going to eventually have to. I know it sounds like the transition's been slow right now, but it's going to eventually happen. So the sooner you learn the ropes, I think the better, and I think it's better to build up that competency now. Dip your toes in it, or maybe just jump in. But also, I think keeping people healthy is the right thing to do.
Maybe that's why you're in healthcare, I hope? Doing this stuff- getting people into housing, focusing on food insecurity, financial literacy; this is all stuff we should all be focusing on. And also, it's not like you're not going to save any money. I think the effect will be a little muted so long as your system is primarily fee for service based. But you can still see some improvement even if it's not too much. I think the further you go into that program, the more results you're going to see over time.
Alex Kacik: Tara, Hey, thanks so much for taking the time. I appreciate you sharing your expertise with us.
Tara Bannow: Thanks for having me.
Alex Kacik: All right. Thank you all for listening. If you'd like to subscribe and support our work, there's a link in the show notes. You can subscribe to Beyond the Byline and wherever you listen to your podcasts, and you can stay connected with our work by following Tara and I at Modern Healthcare on Twitter and LinkedIn. We appreciate your support.
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