Paying for Value is a Pivotal Step Towards High Quality Health Care

By Aditi Joshi

The United States health care system is facing a quality crisis. Industry players are in constant competition to strike a balance between the quintessential health care trifecta: low cost, high quality, and easy access. It seems the only solution to achieving easy access and low costs comes at the expense of high quality. But in order to achieve high-quality care, costs dramatically increase and thus restrict access to adequate care to those who can afford it. Costs have risen so precipitously that according to the Organization for Economic Cooperation and Development (OECD), the US spent more money on health care in 2017 (17.9% of national output) than any other country in the OECD’s 36-country consortium. As a nation, we are spending more than twice as much per capita than the average comparable developed nation, such as Germany and the United Kingdom. Yet our current quality of care does not reflect these monumental costs. A fundamental system flaw that is partially to blame for this gross disproportionality lies in the current process for compensating health care providers for their labor. In order to improve the quality of care that patients receive, our health care industry is undergoing a dramatic paradigm shift in provider reimbursement system. 

Fee-for-service (FFS) is the traditional payment model of our health care system. Physicians and other health care providers are paid based on the number of services provided to a patient. Some costs come out-of-pocket from the consumer through co-pays and deductibles, but insurance companies and government programs are the predominant sources of compensation. Each service is dealt with independently: every treatment, test, procedure, and visit is separately billed at each doctor’s appointment, hospital stay, or surgical consultation. The problem with this reimbursement model is that providers are incentivized to conduct as many billable services as possible in order to maximize revenue, leading to the overutilization of medical services. This drives up health care costs without an offsetting incentive to improve health care outcomes, detracting from a full focus on patient care. 

In an effort to solve this problem, third-party payers (e.g., government programs and insurance companies) are increasingly switching to new reimbursement models known as fee-for-value (FFV), which consider patient outcomes as the predominant factor when calculating provider reimbursement. In other words, how much a physician is paid depends on how well she does her job—with the caveat that if a negative clinical outcome is inevitable (i.e., a patient is terminally ill), then the provider would not be penalized on quality measures. If the provider meets specific performance criteria, she will be reimbursed more: improving the outcome of the patient thus becomes the primary economic incentive. 

Implementing such a drastic shift to pure value-based reimbursement is nearly impossible to accomplish overnight. A direct transition is not feasible in such a gigantic industry with hundreds of insurers, all with slightly different reimbursement policies and models. Therefore, several more commonly used payment models that hybridize both FFS and FFV models are being implemented in order to smooth this transition. Take pay-for-performance (P4P), an increasingly common reimbursement model that incorporates principles of both FFS and FFV. In the P4P model, providers are still reimbursed per service; however, they are paid more if they meet specific quality benchmarks, or penalized if they fall short. Since the FFS rates are adjusted for provider performance, a financial incentive is placed on doing what is best for the patient. Another payment system known as an Accountable Care Organization (ACO) consists of physician-led groups that collaborate to minimize the cost of care while maintaining quality. ACOs operate on a mostly fee-for-service basis, but physicians are rewarded for achieving group savings beyond a set threshold—but only if they continue to meet established quality standards. A third value-based model is known as capitation, in which providers are paid by health insurers a set amount of money per patient each month, based on historical utilization patterns. If the provider can keep costs below the fixed capitation payment, then it makes money; while if costs go above the payment, the provider loses money. The insurer is essentially handing off risk to the provider, holding them responsible for better patient outcomes and reducing service costs. This approach incentivizes a long-term investment in the patient’s health, encouraging preventative care and ensuring that services are provided at the lowest appropriate cost. As opposed to a pure fee-for-service reimbursement model, hybrid setups incorporating FFV principles are a significant step toward a direction promising better quality health care.

In addition to rising health care costs, there are a number of other problems associated with our conventional FFS reimbursement system that further encourage a paradigm shift in reimbursement. Although private insurers and government-funded programs bear the brunt of these exorbitant costs, they still trickle down to health care consumers who face increased premiums and deductibles. Other issues stemming from FFS include a short-sighted focus on service volume, a tremendous barrier to shifting to low-cost health care, and a lack of focus on preventative care. If providers are financially motivated to treat patients with existing illnesses or injuries, attention to preventative care is diminished. In the context of insufficient preventative care, many patients with poorly controlled diabetes or other pre-existing conditions come to hospitals needing expensive surgeries when their illness could have been managed using low-cost, high-value precautionary services. FFS reimbursement does not provide any incentive to manage health at the community level, thus avoidable illnesses become more prevalent. 

Additionally, shifting to low-cost health care is tremendously difficult because of the unique constitution of the US health care system. Big pharmaceuticals pour millions of dollars into drug research and development, which is then made available to the public at an extremely high cost in order to generate profit. Health insurance companies provide different plans that cover these expensive medications and treatments, but with subsequently high deductibles and premiums. These premiums also increase as a result of overutilization of services via FFS. As a result, socioeconomically challenged individuals are unable to afford insurance plans, and access to health care is dramatically reduced. 

As with any radical paradigm shift, this changeover is facing several major obstacles. The transition is working toward a payment system based on quality care improvements and quality reporting. But one of the main obstacles comes in the difficulty of accurately reporting health care quality measures, which costs upwards of $15.4 billion. High costs result from the expensive resources and infrastructure necessary to report quality measures appropriately and successfully; these include provider data, EMR, IT frameworks, and campaign management. The costs and resources needed to adequately implement a value-based reimbursement system may not be feasible for all health care providers. 

By no means is FFS reimbursement the sole perpetrator for rising health care costs and substandard quality. There are a plethora of contributing factors to this crisis, including the fact that services and diagnostic procedures are just more expensive here than in other industrialized nations. Additionally, the US allots an exorbitant amount for drug research and development as well as medical technology advancement. This particular expenditure seems justified, however, as the US leads the world in health care research and cancer treatment: the five-year survival rate for breast cancer is higher in the US than in other OECD countries and survival from colorectal cancer is also among the best. For every expenditure that have tenable results, however, there are a hundred others that are wasteful and unwarranted. 

The transition from FFS to FFV compensation represents a crucial component of offsetting costs to pioneer a shift toward higher quality care. It must be undergone with a holistic view of keeping costs low, quality high, and access easy. This endeavor will not be an easy feat. Overcoming the challenges associated with transitioning payment models will require close collaboration between payers, providers, patients, and the public sector. But if it is done right, the US health care system might at long last fall in line with its international counterparts.