Every day, we hear and read about healthcare and proposed physician payment “reform.” Value-based purchasing, accountable care and bundled payments are just a few examples. With headlines such as these, we are left to think, “Here come more administrative burdens and lower fees for delivering healthcare.”
Close to half of physicians are employed by hospitals, but those who remain independent need to know how to continue delivering high-quality health care while remaining financially solvent and understanding the various sources of payment that may be available.
This article is not an exhaustive review of alternative payment models (APMs), which are widely available in health policy and medical specialty society literature. Instead, we will share insights on how you should think about the multiple payment models and how they affect new treatment options in your practice, starting with:
Individual, Per Patient Episode Fee For Service (FFS)
This is the model we are all most familiar with. Keep in mind the fee can actually be for a bundle of services (for example, to include a 90-day global period following surgery).
The downside of this arrangement is that costs of providing care may be more of a function of volume than value. Does the system incentivize more costly procedures over less costly ones? Does it promote delivery of unnecessary care?
Keep in mind that many of the evolving payment models are rooted in the idea that we are trying to “fix” FFS medicine.
FFS with More Expansive Bundled Payments
This is still a version of FFS — it’s just now an individual healthcare provider accepts payment for a larger, all-inclusive bundle. Diagnosis related groups (DRGs) are examples of a large bundle for an inpatient hospital episode. Other examples include:
Annual cost of managing chronic disease (e.g., diabetes primary care) vs. per episode/item
All physicians services paid under a single bundle when there is co-management
Physicians and hospital care paid under a single bundle (e.g., orthopedic payment bundles for hospital and physician services)
While drugs (retail pharmacy and physician administered “buy and bill”) have largely been excluded from many of these bundles, don’t expect that to remain the case forever. Dialysis and oncology are just a few examples of specialties where “capitated”-type agreements now include prescription drugs.