By Rohan Kulkarni

Rohan Kulkarni

“The desire to connect payments to results is growing among payers, consumers as well as providers.” –
Rohan Kulkarni, vice president of Healthcare Strategy and Portfolio for Xerox

Business processes for healthcare providers are under pressure; they must change in order to keep up with the new realities wrought by the consumerization of healthcare. Top on the list: How providers get paid for their services.

In its simplest form, I break healthcare pricing into three main categories:

Fee for Service: This is the most common type for most healthcare consumers today. It is also the type of fee that does not have any bearing on the quality of care. You may go to your primary care physician any number of times for the same ailment and get charged every time. Your provider bears almost no financial incentive to keep the number of your visits down.

Bundled Payment or Episodic Care: This evolved from having several procedures (and billing transactions) to a fixed price and a warranty period. The Centers for Medicare and Medicaid Services (CMS) finalized the first mandatory bundled payment for joint replacement procedures that will go live April 1, 2016. According to this program, the provider will be accountable for the quality and costs of care for an entire hip or knee replacement surgery. The episode of care begins at the time of the surgery, through 90 days after discharge. The migration away from Fee for Service has begun.

Outcome Based Fee: Accountable Care Organizations and Population Health Managers have embraced this idea where they will be responsible for the end-to-end care of a specific defined population. The providers will be compensated by the payer on a fixed fee basis tied to specific outcomes. If the provider is able to encourage consumer behaviors that result in healthy outcomes, they will benefit in the savings with the payer or by themselves. Otherwise, the provider will have to accept the burdens of failure. From a consumer perspective this connects them at an unprecedented level with the provider. For example, the care coordinator who plans wellness, acute care and post-acute care support will also assure the patient adheres to his medication regimen.

Significant energy and motivation towards Bundled and Outcome based constructs means the days for the Fee for Service model are numbered. That’s because the desire to connect payments to results is growing among payers, and providers. More importantly, as consumers get more engaged in the management of their healthcare, they will be a force for more equitable payment mechanisms. Business models such as bundled payments and outcome based fees are beginning to show success, particularly as Accountable Care Organizations and Population Health Managers start up and take hold.

Even as house calls makes a comeback either through an actual visit or a virtual visit through telemedicine, fee for service will have had its day and not soon enough for the consumer.