It’s no secret that we are struggling to find the best way to pay for health care, which Warren Buffet famously calls the “tapeworm of the American economy” and “the No. 1 problem of America and American business.” The traditional and still widely embraced payment model is our claims-based fee-for-service system, even though it’s clear that this model most often produces bad incentives and is now generally accepted as an obstacle to improving the delivery of care. With the exception of preventive care services, paying fee-for-service is a recipe for waste. Simply put, fee-for-service prioritizes volume of care over effective and efficient patient-centered care. Companies and proponents of the fee-for-service model are starting to be seen as something akin to climate deniers.
But what do we replace it with? And how do we move the required money and information more effectively? Over that last seven years CMS, private payers, and some thought-leading providers have been iterating on new value-based reimbursement models such as capitation and bundled payments. Capitation represents a fixed payment per beneficiary across a defined population. Bundled payments are a way to pay for an episode of care or condition during a defined period of time. Of these two, the bundled payments model has demonstrated the most potential. In his 2016 piece in Harvard Business Review, Michael Porter calls bundled payments “the only true value-based payment model for health care.”
Despite the promise, alternative payment models struggle to be effective largely because of issues related to risk, trust and operational efficiency, according to Dr. Kevin Bozic et al. in a 2016 ARQH study. It’s been shown that high administrative costs are generally associated with poor care delivery (ex. duplicate lab tests). Too much energy is being been spent on identifying patients, claims processing and retrospective reconciliation efforts that have little payoff. These problems are not limited to bundles and alternative payment models. A 2014 NIH study by a group of physicians and health policy researchers with ties to UCSF and Harvard Medical School found that, in 2012, we wasted $375 billion in Billing and Insurance (BIR)-related paperwork. Eighty percent of the $471 billion we spend on BIR activities is embedded waste resulting from the inefficiencies of our financing system.
“We found that physician practices spent about $70 billion in 2012 on bureaucratic paperwork. Hospitals spent an estimated $74 billion on BIR, and other institutions, such as nursing homes, home health care agencies, prescription drug and medical supply companies, spent an estimated $94 billion on these money-chasing tasks. Private insurers spent $198 billion on BIR, whereas public insurers, e.g. Medicare and other government-sponsored programs, spent $35 billion on such activities.”
– Aliay Jiwani, lead author
There is hope that blockchain and distributed ledger technologies could help provide new supporting infrastructure to solve these problems. If we can use the distributed ledger to create a common platform to administer payments and adjudicate claims, we could attack the issues of trust and payment administration costs. Furthermore, this new rail could allow us to begin connecting the payments process to that of benefit design. The idea of programmable payments opens the door to brand new models that can help mature existing solutions and create the foundation for brand new value-based market concepts. The software becomes the trusted third party. The member is the trigger. The beneficiary wins. Additionally, a distributed platform could become an enabler of self-organizing care teams which take clinical and financial responsibility for the management of conditions and delivering care. Payments could be tied to quality gates. This is not limited to our current concept of bundles. It can serve to support the physician-focused models emerging as a priority of the new administration.
“There is no one-size-fits-all payment model, and we need physicians to submit proposals for models that will work for them, in their practices, with their patients.” – HHS Secretary Tom Price
Hashed, Altarum and other partners of this workgroup share an interest in collaborating with thought-leading payers, providers and employers on the blockchain’s role in future payment models. Together we want to change the conversation… enabling a new, scalable, sustainable platform for health care payments where the attention is focused on the patient’s health and wellness. The exciting potential is in redesigning the payments process from one that is system-centric to one where the needs of the patient take the lead in determining the services delivered across a condition or episode.
“It requires a retraining of the way in which we consider the delivery of health care, from one in which the shape of the delivery system comes first – with a set of pre-defined services that are deemed essential to the proper care of patients – to one in which the needs of the patients dictate the services that are delivered at any point in time, and providers assemble to deliver those services.”
– Francois de Brantes, Altarum