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Days of Fee for Service (FFS) Medicare and Medicaid are Numbered

By: | Tags: , | Comments: 0 | March 17th, 2015

A few days ago, the Boston Globe reported that “Blue Cross vastly expands quality-based payment systems”. The article went on to say that “health care industry’s traditional system of paying doctors for every office visit, test, and procedure may be nearing its end”.

I have been waiting a long time for a headline like this. I have zero doubt that 10 years from now 75% or more of all medical billing will replaced by either value based payment or, capitation. The reality is, in healthcare today, we spend a great deal of money on “administration” of healthcare. This includes everything from a doctor calling or communicating with a payor, or insurance company, documenting what is done in greater detail than is required, billing, collecting and processing medical claims. For every dollar a doctor spends, I suspect there is nearly an equal amount spent by payors. None of this potentially 20-30% of healthcare revenue is really improving quality of care. I have estimated that nearly half of this administration can be diverted to quality of care if we transform payments and incentives. Even the insurance company has incentive to use paperwork to delay or refuse payment.

The article noted that this is not just a token move but “The move will extend the quality-based system to more than 1 million health plan members, making it the biggest initiative of its kind in the state and probably the country”.

Blue Cross is not just another payor or insurance company, it controls “40%” of the State of Massachusetts commercial insurance company. I was even a member in good standing.

“This is definitely a new phase,” Blue Cross chief executive Andrew Dreyfus said in an interview. “It’s a very important signal to the community and to the market that we want to continue to advance payment reform, promote accountability for quality and costs, and continue to move away from the fee-for-service system.”

Blue Cross will essentially pay doctors a set amount to care for their patients, or what may also be called in other places “capitation”; however, in this case, it appears that the final payments will ultimately be tied to how well doctors and hospitals score on a variety of quality measures. Capitation in the Medicare Advantage segment has been nearly standard in states with high concentration of Medicare members led by Florida, Texas and California.

Medicare has been further experimenting with capitation, risk sharing and value based compensation not only via Managed Care Organizations (MCO), but also via Accountable Care Organizations (ACO), and expect to convert 50% of medical care from traditional fee for service to “alternative” compensation by 2017. That is a big task but all progress, even at a slow rate, is a good idea.

I believe this is good for patients, providers and payors. As patients, government and insurance companies deal with a $3 trillion (USD) industry, these types of quality driven measures will become the standard, not making news headlines. We as an industry need to put the finances behind us and use an overwhelming amount of our resources and new technologies to make the next leap in quality of care. The U.S. healthcare system and especially the consumer of healthcare will be better for it.

A very exciting period lies ahead of us!

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