The Reimbursement and Value Based Purchasing Revolution

By William DeMarco, December 21, 2009

MCOL asked me to respond to the following question for their current issue of “Thought Leaders”: Outside of pending national health care reform legislation, what trend(s) or issue(s) do you think will have the greatest impact on health care for 2010?" My abbreviated summary response is included in the newsletter, but what follows is my detailed response.

I think the entire revolution of reimbursement and value based purchasing is changing health care with or without reform.

First, consider the shift to for profit for so many organizations: Blue Cross plans that are consolidating under Well Point; not for profit hospitals that are aligning with or being bought by for profit hospitals;  and finally physicians who came out of the Physician Practice Management ( PPM) environment only to find they did need to invest in other for profit businesses or sell out to the hospital. Ambulatory care centers or buying a bone density scan to make revenue to keep ahead of the rising cost of managing the practice is new for most doctors. These were unheard of a decade ago.

All of these enterprises are having difficulty getting the asset valued that would permit them in some way to get some meaningful equity out of their hard work. That equity could be turned into cash or at least a cushion for future transactions. The new reality is bond houses are just as stingy as traditional investors and financing cost centers like facilities is increasingly difficult

At the same time reimbursement is shifting to a more sophisticated level with ICD 10 and MS DRGS and additional changes that will reveal just where the care and dollars are going. New innovations for treatment at less cost is a hoped for outcome but the ability to police more services and eventually go to a bundled payment system will put both doctors and hospital at risk for living on a budget for each episode.

This new integration is more cohesive than before and as more consolidation occurs collaboration not competition will be a key to survival. How the detail in each of these new expanded payment codes must be reported and tracked. This will be impossible with our current machines that barely report receivable and payables even for the most sophisticated practice. Collecting for managed care, now the majority payer has spawned a new business of revenue cycle management but now a new dimension of reporting utilization is also a requirement under pay for performance.

This disremediation of the old payment and billing systems physicians’ practices and hospitals used is making many rethink their “falling apart” systems.

The “new integration” brings this billing and payment all together again but not through a centralized structure. “Meaningful use” has arrived and that means web based connections to physicians hospitals employers insurance companies and even patients  is a requirement to get at bundled payment, report episodes of care and invoke some accountability into the definitions of necessary and unnecessary care.

Our point is that without the data, the payment will be reduced and where insurance companies had all the data for years its now time for providers to also invest in data driven strategies to better their reimbursements but , more importantly , begin to innovate and test methods to improve quality without increasing costs. This means permanently removing wasted effort and procedures that are inconsistent in their outcomes from the practice, but also, and this is what physicians and hospitals are most afraid of, changing behavior to make a living through more precise and frugal use of insurance and consumer dollars.

This underlying structure is shifting all at the same time reform is being discussed. Like two tectonic plates that shift causing an earthquake and then settle until the next large change. The results are unstable sections of land, tsunamis and new opportunities for growth What we see is slowly the components of value based purchasing are becoming a clear and present danger to the provider that waits too long to take action.

The providers waiting out the rules of reform right now are behind. That means for them 2010 will be remedial instruction on integration. Organizations that have the discipline to prepare the plan A and plan B of strategy are already ahead.

They are not waiting for rules to develop strategies to get around rules they are already making their own rules and slowly and consistently changing all their substructures to accommodate change with intelligent human capital, strong organizational culture and the confidence that their growth plans will eventually succeed.

Others are still cost cutting to make money. They are waiting for a bail out and telling their boards they will respond to the market AFTER an event has occurred. Henry Kissinger would often say that a crisis is a group of untreated issues that people knew they needed to change but did not change and now the cumulative effect is a crisis.

The reason we did not change them is often times because if fear or denial. We kept saying the health care delivery system is falling apart, the Institute of Medicine gave us evidence as to what was falling apart and then offered us a solution to bring these parts back together. But the understanding of what integration was supposed to look like was not clear and many organizations failed in an attempt to use it as a strategy to control doctors and or control managed care.

We now have a second chance with or without reform to re engineer our business process, right size our medical staff organizations and join together reimbursement and quality initiatives to get to the point of being able to reward superior performance with better payments and differentiate ourselves in the marketplace as providers and health plans with distinction. This may be a long road back for some which is why getting started now is the best strategy for 2010.