Health Care Reform
June 6, 2014
Health Care Reform – Part One
Ron Charpentier, COO – BreatheAmerica As I travel around the country and talk with hospital system executives, payers and large employers, I hear the same thoughts about how our current system of reimbursement, Fee-For-Service (“FFS”), needs to be replaced. FFS essentially pays providers for every service they perform. The more services that providers perform, the more providers make. In this system of reimbursement, there is no incentive for providers to lower the cost of care. And, any reduction in FFS payments creates an incentive for providers to perform more services to make up the difference.
The way that home builders get paid provides a good analogy for explaining current health care reimbursement. Building contractors agree to build new homes based on the specifications stipulated by the owner. Contractors hire, on behalf of the owner, a number of “sub-contractors” like carpenters, plumbers, electricians and roofers to name a few. The contractor receives a bill from the subcontractor and then adds his fee, typically a percentage of the bill, before passing the bill on to the owner. The contractor actually makes more money the higher the cost of the subcontractor’s work. Conversely, some owners hire a contractor for a fixed price. The contractor charges one preconstruction fee that is determined by a cost estimate for building a home according to the owner’s specifications. In fixed priced contracts, the less the contractor spends on subcontractors, the more he makes. Homeowners typically like this payment model better because it shifts the risk of “cost overruns” to the contractor. To make sure the contactors builds a quality home according to the owner’s specifications, owners often depend on inspectors that “sign off” on the quality of the work and ensure the adherence of the work to certainly quality guidelines called “building codes”.
So, many experts would argue that health care needs to moving away from FFS toward more “fixed priced” arrangements that shift the “cost of care” risk from payers to providers. To ensure excellent care, payers would measure the quality of services performed by the providers against certain performance guidelines called “protocols”. So if this is a better method of reimbursement that will lead to lower health care costs and ensure a better quality of care, why aren’t more payers and providers transitioning to “fixed priced” contracts? An even better question is why aren’t the payers of health care services (insurance companies, employers and patients) demanding the shift?