By Rohan Kulkarni
There is a general belief and agreement in the healthcare industry that fee for service does not incent the right behaviors to improve health. Consequently, the outcome-based model has taken on a viable shape with both the progress of Accountable Care Organizations (ACO) as well as the broader acceptance of Population Health Management (PHM).
With outcome-based fee structures, the financial risks shift away from payers to other stakeholders such as providers in ACOs, IDNs (Integrated Delivery Networks) and MCOs (Managed Care Organizations), as well as consumers who hold high deductible plans.
Realign Incentives for Providers, Payers and Consumers
Fee for Service models have not allowed for incentives to be aligned across the stakeholders.
- Providers who get caught up in volume versus quality of care – and err on volume — tend to drive up utilization.
- Consequently, payers become ultra-focused on keeping costs down by cutting benefits, renegotiating contracted rates or engaging the lowest-priced transaction outsourcing provider.
- All while consumers ineffectively and inefficiently consume healthcare which causes subpar health outcomes, which also causes higher costs.
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Outcome-based models are showing us that incentives can be aligned better among all stakeholders.
- Providers are responsible for the end to end consumer care and get paid based on the consumer’s health outcomes. No more of the volume versus quality of care trope, this forces the best use of available resources.
- Payer businesses become more predictable as focus shifts away from the transactional components (and costs) to managing outcomes — particularly when the fee is capitated.
- Consumers are more likely to use care appropriately without having to fear unexpected costs while incorporating behaviors than can sustain healthier outcomes.
Realignment of Risks
As risks shift, so do business processes, because the level of collaboration across stakeholders will change. Population health management will likely be the way to optimize risks across the stakeholders. It has begun to help hospital systems with the transition, while also making inroads in the rationalization of the risks. The Population Health Management market will grow to $41 billion by 2018 with approximately 25 percent CAGR. I expect the growth will accelerate beyond that as the adoption rate ramps up with improved technology and millennials consuming care in new and improved ways.