CEO Blog: Changing How We Pay for Healthcare

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Is legislated healthcare reform here to stay? As we watch the presidential race heat up – and look to a Supreme Court ruling this summer— no one knows for sure. Regardless, we as a nation need to realize that traditional thinking around healthcare is forever changed.

Our current view is based upon delivery of a service, rather than the patient outcome— which incented more service, and therefore more cost. This crazy reimbursement structure—based upon cost creation—dates back to 1965 when Congress first established Medicare. Every healthcare provider is required to submit cost reports for payment. The providers establish their own cost for conducting a procedure, and are reimbursed at cost plus a profit margin as long as they follow Medicare regulations.

Imagine the math when there is no standard cost for the same procedure—5,000 hospitals x 5,000 different costs = 25 million different prices. The same lack of price transparency applies to pharmaceuticals and medical devices.

So, in four decades the cost of care has never abated. While government adapted some cost control measures, it really just shifted costs right into the private sector; private and public corporations and employees picking up the expensive tab.

The shift has played a very negative role on our economy. In fact, I submit it’s been largest driver of lost manufacturing jobs (six million) and the economic struggles of today’s middle class. Why? American businesses continue to offload health insurance risk to individual employees.

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According to the Kaiser Family Foundation, workers' share of family health insurance premiums has increased 131 percent since 2001. 2010 alone saw an 8 percent increase in individual plan premiums and family plans are up 9 percent. At a cost growth rate of 3-3.5 times our country’s Gross Domestic Product, the worker healthcare burden is likely to grow.

The need to rethink the payment structure is clear. California, Illinois and New Jersey are nearly bankrupt, and the federal government has over $14 trillion of debt. Reimbursement rates are coming down, and if healthcare providers are unable to better manage cost structure, they could quite possibly go out of business.

Most experts agree rewarding care results is the best way to lower costs. After all, when we buy a car, we buy based on capabilities; not on delivery of the car itself. This same thinking is now being applied to healthcare.

Next year hospitals will be at risk to lose up to 2 percent of Medicare reimbursements if they deliver poor quality. Medicare has begun publishing thousands of hospital patient safety records—with details related to complications, death rates and medical errors.

The Centers for Medicare and Medicaid Services (CMS) announced this summera pilot program to improve cost and quality of care by aligning incentives among providers. The “Bundled Payments for Care Improvement Initiative” participants will receive payments for 10 conditions for which payments would be "bundled" for episodes of care.

For example, rather than pay each provider for their specific service delivered as part of a hip replacement—the tests, surgery, rehabilitation—payment is delivered in one lump sum to all providers involved in that treatment episode. Each involved is rewarded for reducing potentially avoidable complications and penalized for excess care.

Bravo to the providers choosing to participate. To those on the sidelines, I say ‘This train has left the station.’ Commercial payors are ahead of CMS and already are using this methodology. Many providers today need to manage simultaneously fee-for-service models and various forms of value-based reimbursement.

Many of us in the healthcare industry have been preparing for what is about to occur. Several years ago our company began developing technology and services that help hospitals holistically contain costs, while delivering the best results.

Our bundled payment technology recently became the first to gain certification by the very company that created essentially the same methodology CMS will be using. The methodology enables hospitals to break out fees per episodes, contract prices at regional level, unit price per service and provider practice patterns, and adjust for severity at the patient level. It also delivers both prospective and retrospective capabilities to enable distribution of dollars in complex care delivery settings.

We built our technology from the ground-up to address the CMS delivery model. We’ve already realized success in supporting our pilot clients with value-based reimbursements. Which brings me to my second suggestion: Don’t wait to engage your clinicians in discussions to drive improved performance. The stakes are too high.

None of us have a crystal ball. We don’t know how the Supreme Court will rule, or who will occupy the White House in 2013. Regardless, healthcare reimbursement change is here to stay. For me, incentivizing our healthcare system to deliver the best patient outcomes at a lower cost per unit is a good thing…and its time has come.

John Bardis founded MedAssets in June 1999, and has been the Company's Chairman, President and Chief Executive Officer of MedAssets since inception. Today the company provides solutions and services to more than 180 health systems, 4,000 hospitals and 90,000 non-acute healthcare providers to help control the costs of delivering healthcare. The company currently manages $45 billion in supply spend and touches over $316 billion in total patient revenue annually through its revenue cycle solutions.