Our nation’s healthcare payment system is broken. What can be done to fix it? That’s the focus of Healthcare Payment Reform: From Principles to Action, a new HFMA report.
The goals for our healthcare system are straightforward. We want a system that provides access to care, offers high-quality care, promotes wellness, and is financially sound. But our current payment system blocks these goals. Expensive specialty services are rewarded while consistent primary care is discouraged. Providers are not compensated in ways that encourage evidence-based care. Complex payment requirements consume too many administrative resources, driving up costs. And high costs lead many to delay or avoid needed care.
No one wins in this situation. The good news is that stakeholders across the healthcare spectrum—providers, payers, employers, and consumers—are ready for change. The HFMA report draws upon the input of these stakeholders in proposing reform principles, identifying areas of consensus, and recognizing the challenges that must be addressed to achieve payment reform.
Reform Principles
The perverse incentives of today’s healthcare payment system must be realigned to support our nation’s healthcare goals. The HFMA report proposes five basic principles for reform:
- Quality: Payments reward high-quality care and discourage medical errors and ineffective care.
- Alignment: Payment incentives are aligned among all stakeholders to maximize the efficiency and coordination of health services.
- Fairness/Sustainability: Payment systems sufficiently balance the needs and concerns of all stakeholders.
- Simplification: Payment systems are simplified, standard, and transparent.
- Societal Benefit: The resources needed to support societal benefits of the healthcare system are identified and paid for explicitly.
Areas of Consensus
A thought leadership retreat sponsored by HFMA in September 2007 brought together representatives of key stakeholders in the healthcare system. From that retreat and subsequent conversations have emerged clear areas of consensus on payment reform.
All five reform principles received stakeholder support; those that have achieved broadest consensus include quality, aligning incentives, and simplification. Strong consensus also exists on some approaches to achieving these principles, including:
- The need for accountability. This approach embraces the concept that payers should not have to pay for services resulting from preventable medical errors.
- Efficiency. This approach aligns provider incentives to eliminate duplication and waste. It also provides consumer incentives for healthier lifestyles, creating a more efficient system based on wellness instead of sickness care.
- Shared responsibility. Providers and physicians are responsible for the efficient delivery of high-quality outcomes. Consumers are responsible for seeking needed and appropriate services. And payers are responsible for payments appropriate to the value of the services rendered.
- The use of evidence-based care. Pilot programs in which hospitals earn bonuses for complying with evidence-based guidelines—or are penalized for failure to do so— are already demonstrating how this approach can be implemented.
All stakeholders support payment incentives that encourage providers to deliver effective, efficient care and encourage consumers to pursue healthful behaviors and follow care regimens.
Implementation Challenges
Given the complexity of our nation’s healthcare system, the devil of payment reform will be in the details. Even where consensus exists, implementing reform will require resolving conflicting incentives or mitigating inequities among the system’s many stakeholders. Among the primary challenges to implementing payment reform are:
- Agreement on quality measures. Outcome measures are generally seen as ideal, but what should be done when outcomes can be measured only after a long period of time?
- Penalizing ineffective care. If a provider suffers too great a penalty, might reduced resources compromise its ability to improve care subsequently?
- Transition costs. Most stakeholders agree that a reformed system will save costs in the long term. But what financial hurdles might result by focusing on the wider use of preventive services in the short term?
- A shared commitment. What can be done to create an environment in which all stakeholders share the sense of urgency that will foster change?
- Imbalances between investments and benefits. How can stakeholders be encouraged to make investments and take actions if many of the benefits flow to others?
- Determining appropriate levels of care. How can the system reward desired outcomes while discouraging excessive volumes of service to achieve these outcomes?
- End-of-life issues. Should financial incentives be used to change the utilization of expensive life-saving or life-extending care in cases where death is imminent?
- Societal benefits. How should benefits such as medical education and care for the uninsured be determined and defined? And how should responsibility for these benefits be apportioned?
Next Steps
HFMA’s efforts have already received the support of organizations including the American Hospital Association, the Commonwealth Fund, DMAA: The Care Continuum Alliance, the Medical Group Management Association, and the National Business Group on Health. And in the September issue of hfm magazine, former Senate Majority Leader Bill Frist, MD, applauds the report “as the foundation for the necessary national dialogue on how to achieve better health and better healthcare delivery for every American.”
At the end of this month, HFMA will move the dialogue forward by reconvening stakeholders at a second thought leadership retreat to map out the process of turning the principles of payment reform into action. The HFMA report has begun the work of building consensus on the toughest of issues. We thank the report’s sponsors—3M Health Information Systems, KPMG, and McKesson—for their support of these efforts.
Visit HFMA's web site for more answers to pressing healthcare business questions.
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If you have questions or comments about HFMA Wants You to Know, contact editor Robert Fromberg at rfromberg@hfma.org.