Health Care Industry’s Old Models Are Crumbling


“Since the mid-1980s, hospitals and physicians have billed commercially insured patients extra to cover their losses on Medicare, Medicaid and uninsured patients…….”

But  “Losses” may only mean “less money” and not necessarily negative cash flow. If Medicare pays $10 for a service, and private payers pay $12 for the same service, one could claim the provider “lost” $2 on Medicare patients. Semantics is a powerful tool.

WASHINGTON — The old business models of American health care are in trouble.

Fee-for-service medicine, where insurers and patients paid a fee for each bit of care and the financial incentive was to do more, was an impregnable fortress fiercely defended by American physicians for a century.

Now it’s crumbling.

Health and Human Services Secretary Sylvia Mathews Burwell announced Monday that the federal government will have a goal of tying 30 percent of fee-for-service Medicare payments to quality or value through alternative payment models by 2016. Two years after that, the goal is 50 percent.

“We believe these goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement,” she said.

Another major business practice — cost-shifting — is also crumbling. Since the mid-1980s, hospitals and physicians have billed commercially insured patients extra to cover their losses on Medicare, Medicaid and uninsured patients. This cost-shifting adds more than $1,800 a year to the cost of a family policy, says the Texas Hospital Association.

“The fundamental system of subsidies is completely breaking down,” said Chas Roades of the Advisory Board Co. “Hospitals get about half their revenue from public payers [Medicare and Medicaid] today, but that’s moving to 75 percent or more in eight to 10 years. The commercial share is just getting smaller and smaller.”

Washington-based Advisory Board provides research and consulting for thousands of hospitals across the country. Roades is the company’s chief research officer. He and other experts spoke on these shifts last week at the Bipartisan Policy Center, a think tank of Republicans and Democrats searching for common ground on major national issues.

As these changes take place, government insurers are paying less, rather than more. And employers who provide workers with health insurance are losing patience with cost-shifting. They’re turning to specialists who can direct their employees to lower-priced hospitals, which squeezes the traditional model even more.

Some of the pressures on these older ways of doing business come from the 2010 Affordable Care Act. Most of that law focused on transforming health insurance. But the law also pushed out pilot programs to get doctors and hospitals away from fee-for-service medicine.

The shorthand for the new approaches is value instead of volume. There’s a heavy emphasis on teamwork and shared access to information. Providers who work together under a budget for each patient’s care can share the savings over the traditional way of doing things. Eventually, those who spend more will be required to share the loss.

Major Medicare reforms announced by Obama administration

Five years after the law was passed, those implementing these programs say we are getting to the tipping point.

“There’s been incredible progress on delivery reform,” said Dr. Patrick Conway, who leads the innovation programs at the federal Centers for Medicare & Medicaid Services. “I really think we are getting to the transition point, where the question is how to scale these up nationwide in a permanent way.”

Former federal budget director Alice Rivlin, who works on debt and health care issues with the Bipartisan Policy Center, told Congress last week that this transition could save the nation $300 billion over the next decade and $1.2 trillion over 20 years.

The last time health care models seemed to be reaching such as turning point was in the early 1990s. Health maintenance organizations, or HMOs, were sweeping the commercial insurance business. Insurers were directing patients to groups of physicians and hospitals willing to do health care for less money — and, sometimes, with less care.

Employers were attracted to the cost savings. Patients rebelled.

Conway said most patients are probably unaware of the changes taking place this time. They may find a care coordinator calling them to remind them of an appointment. They may even get a home visit from a nurse as teams of health care providers try to head off expensive emergency room treatments.

“The difference today is the provider is either in the lead or is a partner,” Conway said. “Patients get it if their doctor is in on it.”

Follow Jim Landers on Twitter at @landersjim