126 ◾ Cost-Based, Charge-Based, and Contractual Payment Systems
Quality of healthcare is really a subjective issue relating to clinical outcomes, patient expectations,
and then overall patient satisfaction. To document and report quality measures of this type fully
requires enormous eort and cannot be readily integrated into payment processes.
As examples of current eorts, we briey discuss two concepts:
◾ Accountable care organizations (ACOs)
◾ Value-based purchasing
Both of these eorts are being pursued by the Medicare program. As usual, private third-party pay-
ers may or may not follow the Medicare lead. Also, renements to these approaches can be used.
ACOs are a result of the Aordable Care Act (ACA) of 2010. While this is a new acronym
and title, much of the organizational structuring for ACOs will seem very familiar given all of the
dierent structures that are in use for managed care, capitation, and other delivery system arrange-
ments. e basic idea is that an organized delivery system (ODS) must be established. Typically,
this would include hospitals, physicians, clinics, nursing facilities, and other healthcare providers.
After the ODS has been established, then the goal is for the ACO to deliver high-quality coordi-
nated care to Medicare beneciaries. On the payment side, the incentive is for the coordination of
care to save Medicare money, and then Medicare will share the savings with the ACO.
Based on our discussions in Chapter 4, this concept of an ACO is straightforward; however,
the details of just how this process is to work are very much a dierent matter. As with HMOs,
the ACO assumes a limited degree of risk relative to providing services in such a way that the
fee-for-service payments from Medicare will be higher than the costs to the ACO. A key issue
in the ACO approach is the coordination of eorts within the ODS. It will take years, and most
probably some changes in the way ACOs actually operate, to determine if this approach is feasible.
One of the features of ACOs, depending on the specic arrangements, is to take common
conditions on an episode-of-care basis and then have the Medicare program make a bundled pay-
ment. At a conceptual level, let us consider three frequently encountered situations with Medicare
beneciaries:
1. Cataract Surgery with Intraocular Lens (IOL) Insertion. Cataract surgery is quite common
among the Medicare population. e typical cost elements are the facility where the surgery
is performed, the ophthalmologist performing the surgery, possibly anesthesiologist services,
and the IOL itself. Postoperative care can also be considered.
2. Knee Replacement. Unilateral (i.e., left or right) knee replacement is a common procedure.
e cost elements are the facility where the surgery is performed, inpatient services pos-
operatively, anesthesiologist services, and the knee implant. Postacute care can also be con-
sidered and may involve skilled nursing or other rehabilitation services.
3. Simple Pneumonia. Medicare beneciaries are often admitted to the hospital suering
from various types of pneumonia. is is generally a medical episode of care involving the
hospital facility and the treating physician along with drug therapies. Some concern for
postacute care might be considered.
Envisage yourself as an analyst who has been tasked with determining how much your orga-
nization should charge for each of these episodes of care. What information will you need? Are
there going to be any signicant variables? How will you take a single bundled payment and split
it between the dierent healthcare providers that are involved in the services that address the
episodes of care?
Summary, Conclusion, and the Future ◾ 127
Because there are dierent healthcare providers sharing in the bundled payments, it is easiest if
providers are employed or owned by the ACO. Negotiating contracts with multiple entities relative
to the amount that is to be distributed from such bundled payments requires a great deal of time
and eort.
Value-based purchasing (VBP) is a general concept that can be implemented in very dierent
ways. Conceptually, VBP involves allowing the purchasers of health care services (e.g., employers,
insurance companies, Medicare) to hold the healthcare providers accountable for both costs and
the quality of the healthcare services. Of course, to assess the quality of services there must be
some extensive feedback mechanisms. is reporting process involves having the providers report
on specic use of clinical protocols and safety measures along with more subjective measures, such
as patient satisfaction with nurses and doctors, cleanliness of facilities, and responsiveness on the
part of sta. If the quality measures are positive, then the providers will be recognized, and there
may be increased payments.
For the Medicare program, VBP is being used initially for hospitals on the inpatient side.* ere
are specic quality measures for health conditions and hospital-acquired conditions and several
measures from the Agency for Healthcare Research and Quality.
†
On the payment side, what CMS
(Centers for Medicare and Medicaid Services) is doing is to reduce the overall reimbursement to
hospitals and then allowing hospitals to regain the reductions by meeting the standards established
through VBP. Also, CMS is measuring the amount that Medicare pays for beneciaries for certain
services. us, on a statistical basis the Medicare program can look at how much is being spent for
certain services along with comparative quality data.
e future for healthcare payment systems will certainly involve an increasing emphasis on
quality of care and thus the overall value of the care being provided. Given the machinations of
just the payment processes, adding in a quality component will increase the level of detail and
complexity.
Endnote
e four books in this healthcare payment system series are really just the beginning. In the
coming decades, payment systems and processes will continue to evolve. Healthcare payers will
attempt to reduce overall expenditures for healthcare services. Healthcare providers will continue
to provide services and attempt to remain nancially viable under the evolving payment systems.
Whatever the case, healthcare is a dynamic industry segment. e one constant is change.
*
See the November 30, 2011, Federal Register for more details.
†
See http://www.ahrq.gov.
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