Is the Party Over for Fee-for-Service? “Turn out the lights, the party’s over; they say that all good things must end.” –Willie Nelson

July 2016

A recent report from the Department of Health and Human Services indicates that in 2016 per capita healthcare cost will be $10,345, an increase of 4.8% for the year.   At $3.2 trillion, healthcare spending made up 17.8 percent of GDP in 2015, and is expected to rise to 20.1 percent in 2025.  These accelerating costs are not sustainable economically, politically, or morally.  The Centers for Medicaid and Medicare Services has no choice but to continue with healthcare reform.  The fee-for-service party is over.

So what should a provider do?  Focus on making the clinical pathway more cost-effective.  Most hospitals have already scrutinized and streamlined non-clinical functions such as staffing and supply chain.  But until now there hasn’t been as much incentive to review the clinical pathway for cost-effectiveness.  To be clear, there are surely additional efficiencies to be gained in non-clinical areas, but those gains are likely small in comparison to improved patient outcomes at most hospitals.

That’s not to say that this path is easy.  The challenge for hospitals and physicians is daunting. First, hospitals and physicians have had a traditional conflict that at best can be described as peaceful co-existence. Working as a coordinated unit with common goals will be essential.

Second, hospitals and physicians do not know what their outcomes of care happen to be.   That’s because 20-40 percent of Emergency Department visits and Readmissions occur in hospitals other than the index facility where major operations are performed.  Third, the effectiveness of post-acute care in skilled nursing facilities, inpatient rehabilitation, and home health services are critical in avoiding excess post-discharge costs.

Finally, compliance by patients to post-acute care plans will be more important than ever in reducing complications of care and reducing excess costs. Hospitals and physicians will need to enhance discharge education and post-discharge communications with patients.

The clinical pathway offers large opportunities for improvement.  In our experience, providers have been able to reduce clinical costs by as much as ten percent by focusing on improving quality.   Providing care that results in better patient outcomes will ultimately reduce expenses and will improve margins in the prospective payment environment of value-based purchasing.   There aren’t a lot of short cuts here.  Providers just have to provide more cost-effective care.  And that’s how it should be.  The provider that offers the most cost-effective care will win the day.

Donald Fry

Donald E. Fry, M.D. is Executive Vice President for Clinical Outcomes Management at MPA Healthcare Solutions, Adjunct Professor of Surgery at Northwestern University, and Professor Emeritus of Surgery at the University of New Mexico School of Medicine. At MPA Healthcare Solutions, Dr. Fry provides clinical leadership in analyzing and evaluating clinical performance, guiding quality improvement, and creating incentives for coordinated, cost-effective care.

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