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KSM Blog | Katz, Sapper & Miller CPA

Whatever Happened to Fee-for-Service Healthcare?

Posted 12:00 PM by

Buggy whips. Typewriters. Dodo birds. Fee-for-service healthcare. What do they each have in common?

A lot, according to members of a Healthcare Leaders of New York panel on "The Future of Healthcare Financing." The buggy whip, the typewriter and the dodo are extinct. Fee-for-service reimbursement, the panel predicted, is not dead but on life support.

Mark Bogen, chief financial officer and senior vice president of finance for South Nassau Communities Hospital, moderated a panel that included Joseph Guarracino, senior vice president and chief financial officer of The Brooklyn Hospital Center, and Peter DeAngelis, a partner in strategic execution at IMA Consulting.

"We are headed toward a risk-based capitation system," DeAngelis told attendees. "I think we are migrating toward risk sharing and capitation driven by the largest payer, Medicaid, and the states and the Feds also are driving that change. So while the industry is still closer to fee-for-service at this time, the search for value is leading the market to a risk-sharing world, a capitated world.”

"Providers and insurers," he added, "are aligning in unique ways. And as more people buy products on the exchange, it will also will drive more business into a risk-sharing arrangement."

While in agreement, Guarracino noted that at the moment, "there is some fee-for-service coverage by government payers or insurance companies. A year ago, I thought we would be further along into risk-bearing relationships with payers. There will be some fee-for-service holdouts, but [The Brooklyn Hospital Center] already is capitalized for full risk with Medicaid because we have an interest in the insurance company [HealthFirst]."

He also noted, "For hospitals with significant Medicaid populations, [risk sharing and capitation] requires you to draw down utilization. So the question becomes: 'How do you keep your organization going? How do you manage the finances?'

We've been strategizing how to care manage our patients and think the move to risk-sharing and care management is the right thing to do. The issue is being able to plan. Those hospitals that have a lot more cash can forward think the issue."

Better Care, Lower Cost, Improved Patient Satisfaction

According to DeAngelis, there is a lot of momentum building for risk sharing and capitation, albeit region specific. Some hospitals have embraced the concept, he said, citing a hospital system in Springfield, Mass., that has had "an incredible head start in Medicaid services.”

He then noted, on the other hand, “New York is a little behind. There will be an acceleration, but there is still significant fee-for-service. Change will be driven by the leadership of the plans and providers, and will include quality-based incentives. There is a better way to spend healthcare dollars but leadership is key to making that happen."

Delivery System Reform Incentive Payment (DSRIP) Programs have been "done" in Texas, said Guarracino, and there are 13 different demonstrations in New York. Looking forward, he expects that two years from now, of those 13, "some will be successful, others won't. We will learn by doing."           

Medicaid Money

The impetus for this drive to risk sharing, capitalization and quality-based incentives in healthcare is an $8 billion money pot. "It is an interesting number," DeAngelis said. "It is just enough money to get in trouble [if providers don't plan effectively].”

He recommends providers test the waters with their own "employee-based populations to see what the care management opportunities are, and then migrate to Medicare and other shared savings programs. I think this is a migration process, supported by the fact that younger generations do not consume healthcare like I do."             

Size Matters

Success in a risk-sharing, incentive-based system will require changes to providers' infrastructure – in IT, staffing and facilities. "We're seeing it already with the addition of case managers and care coordinators," Guarracino told attendees. "DSRIP will be a success if we can do away with poverty and obesity. The population we are dealing with doesn't want to come to brick and mortar facilities, it wants us to go to them. We have to be where they are.”

Picking up the thread, DeAngelis added the challenge and solution likely lie in infrastructure scale. "How big do you need to be to succeed in this new world? As big as you have to be. To be successful, providers have to be at the scale to get their operating costs at a level to be profitable. The state says it wants to spend money on Medicaid, but the problem we see is that these payments start at $1.10 for every $1 of care but end up at .85 reimbursement for every dollar spent.”

Moderator Mark Bogen agreed. The question, he explained, is not just how big you have to be but how you go about growing. "Montifiore," he said, "is doing a million-person march. They once were only a Bronx hospital but have moved up the Hudson to get enough bodies to spread the risk. Conventional wisdom is that scale matters and the days of the independent hospital, like the individual physician is an oldie but goodie."

Education and Communication Are Key

Keep the lines of communication open. Patients should talk to their doctors. Doctors should educate their patients. In terms of healthcare finance and compensation, the key players – doctors and hospital administrators, as well as payers – should be talking to each other.

At the meeting’s close, DeAngelis suggested that educating the diverse populations that use and provide healthcare is key and that engagement is also key. He then explained that the difficulty lies in how small the window is to implement change. “The one good thing about healthcare,” he concluded, “is that everyone consumes it.”

About Us
Katz, Sapper & Miller’s Healthcare Resources Group serves healthcare providers, including physicians, hospitals and health systems, surgery centers, and long-term care facilities. Our team of healthcare professionals has the scope and depth to meet client needs. Learn more.

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