Essays from Ernie's students - 2

Here is the second of the selected essay's from Ernst Berndt's Sloan School class at MIT. David Berlin is the author. Please submit your observations and grade in the comment section. There are three other essays.

The most complex question raised by the AQC is how to allocate the global payment among various care providers encountered by a patient. Evaluation of this question requires analysis of methods for data aggregation, a structure for determining the relative value of various services provided to a particular patient and a plan for implementing the change from fee-for service reimbursement to global payments.

The logistics for managing care under an AQC arrangement are significant. Providers are responsible for orchestrating the spectrum of care received by patients, and concurrently optimizing both outcomes and costs. The initial hurdle in achieving these goals is to provide reliable and consistent data to the primary care physician decision makers. The AQC relies on physicians adjusting to new incentives that incorporate costs. Therefore it is essential that physicians who choose where to refer patients are fully informed as to the costs of various referral options. If physicians are blinded from this cost data they cannot be expected to make rational decisions regarding the best locations to refer patients. Secondly, these physicians should be provided aggregated outcome data for referral sites. By pairing aggregate outcomes with the costs of services, physicians will be able to determine where patients will receive the greatest value. The data should be aggregated through the insurance provider, as they are a source of continuity between patients and therefore the only party that is privy to the totality of a particular patient’s care and cost tally. By aggregating this data through the insurance provider and distributing it to primary-care physicians, these physicians will be empowered to make rational decisions on behalf of their patients.

Determining the relative reimbursement for various services is also a major issue within the AQC model. Under the traditional fee-for-service model each service is independently reimbursed at pre-defined rates. However under the AQC model, a significant portion of potential revenue is realized through outcomes based bonuses. Were this bonus to be distributed proportional to a physician’s share of reimbursement for a given patient, the system would again incentivize the provision of high-cost services. Therefore providers should find a mechanism of distribution that links payment to the value of services received by a particular patient, as measured through outcomes. Within the physician practice network various specialties should negotiate their payment rates with the practice administration. This provides internal market forces that allow the individual practice network to determine the relative value of various services. Furthermore, since the primary-care physician is tasked with orchestrating the spectrum of care, they should be entitled to a more significant share of performance based payment than specialty providers.

The transition from fee-for-service to a global payment system creates significant changes in provider incentives, and therefore should be executed in a gradual manner to allow an appropriate market reaction. Initially it would be most reasonable to keep reimbursement rates at existing levels, with efficiencies being extracted through changes in referral volume. Over time in-network physician specialists should be required to negotiate with their practice administration to determine reimbursement rates. Should those services ultimately be priced at too high a level relative to the value provided to patients, one would expect the volume of referred patients to diminish accordingly as a result of changing referral patterns. If provided with adequate information regarding utilization and outcomes, practice administrators should recognize which physicians provide improved value to patients, and can subsequently allocate an increased share of overall reimbursement to these physicians. By leveraging these market forces, a system of continual improvement will be created with incentives for investment in both improved outcomes and efficiencies.

The objective of modifying physician incentives is both challenging and important for creating a sustainable healthcare system. The recent AQC contract between BIDPO and BCBS-MA provides an encouraging framework for modifying incentives to align with the overall value provided to patients. While the theoretical structure of this contract should provide both improved outcomes and restrained costs, the results remain to be seen. Among the challenges facing the AQC are questions regarding implementation, allocation of global payments, and uncertainty regarding the true impact of these changes on physician behaviors.