Healthcare Reimbursement Based On Quality Outcomes

Dawn Pascale

Necessary. Life-saving. Wellness. All terminology and codes for health care sought by consumers and covered by insurers.

Medical jargon and buzzwords fill articles and proposals on ways to improve the state of health care in the United States. In these numerous recommendations, the methods with which physicians and hospitals are paid have become a hot button debate.

Most medical opinion agrees that the Fee-For-Service (FFS) structure of reimbursement has run its course and proven to be flawed as a volume-based business model.  FFS doesn’t embody a patient-centric reward system and at its worst, has created an environment of diminished quality service and patient outcomes. Mass migration of the healthcare industry is already underway to a new model that rewards the provision of premium care to patients at the lowest possible cost, oft referred to as outcomes-based reimbursement.  Welcome to the future of healthcare.

Agreement spans from bi-partisan policymakers to health economists to others with vested interest that paying for positive performance can reduce expenditure on medical care that returns little or no value and can increase the quality provided.  In an article, published by Wharton School of Economics in March 2012, speaker Robert Pearl, president, and CEO of The Permanente Medical Group, forecasts that the future is unsustainable on the current model with “costs rising at 7% to 8% a year; healthcare is 18% of GDP[in 2012], and is set to double to 36% of GDP by 2030.”  With even more convincing evidence of the need for performance-based reimbursement methods was Glenn D. Steele Jr., president, and CEO of Geisinger Health System, who stated that “more than 50% of health care spending in the U.S. is wasted or actually harmful.”

Movement from the volume-based FFS methodologies and towards an outcomes-based, value-emphasized model is nowhere more apparent than in the implementation of payouts and penalties in 2013 by the Centers for Medicare & Medicaid Services’ (CMS) Hospital Value-Based Purchasing Program.  To date, this is the largest launch on the part of the federal government to put the risk back on the providers and hold them financially accountable for the quality of care that they provide. This initiative has spawned several complementary test programs for reimbursement in both private- and public-sector payors, such as:

  • Accountable Care Organizations (ACOs)healthcare reimbursement
  • Medical Home Pilots
  • Global or Bundled Payments
  • Episode Care Reimbursement

Actuation of the fiscal impact to an organization’s bottom line with CMS’ Value-based Purchasing Program may potentially sway between 5% and 7% of the total Medicare and Medicaid payouts, hinging on patient outcomes, safety, and quality.  With that kind of money at stake, medical organizations would be wise to begin implementing processes of metrics analysis, both past, and present, in order to identify weak areas and fix them before CMS penalties grow larger.  As of November 2013, Medicare’s quality-based incentives program penalized nearly 1,500 hospitals based on their performance and improvement assessments to 24 indices, with most gains or losses equating to less than 1/5 of a percent of what Medicare would have paid prior to the quality-based incentives program.

Physician Compensation Changes Ahead

In a New England Journal of Medicine article on Physician Compensation, shifts in how doctors are electing to be paid have been seen in recent surveys and statistics.  More and more physicians entering the initial practice pool or changing groups are looking away from the income guaranteed or salary only offerings and opting for more salary + bonus compensation packages.   Most of the incentive models emphasize quality and outputs.  These compensation packages can range from a bonus as percentage of base format to a risk/reward only format (wherein a provider may receive 90% of the stipulated salary and once certain objectives are met, they receive the remaining 10%).  For many newer physicians, production based bonuses are attractive as an offset to the immense amount of debt most carry into practice.  In a May 2010 focus group of 150 physicians, performed by Cejka, 82% rated production incentives as “important” or “very important” with 78% of participants preferring a production-incentive model over straight salary or income guarantees.  Notably, only 6.5% preferred income guarantees and 15% would elect salary only.


Quality metrics-based bonus structures are quickly moving to the forefront of preferred salary offerings options in hospital and private practice physician group settings.  With more advanced metrics monitoring steadily introduced into the market, the means to an end are in place to repair flawed systems and to better gauge the quality of physicians. Another upshot of healthcare quality metrics monitoring is the evolution of how physicians are bringing home their earnings. McKinsey & Company state in The Million Dollar Prize: Using outcomes-based payment to address the US healthcare financing crisis,

Our analyses suggest that aggressively migrating to outcomes-based payment has the potential to reduce healthcare spending in the United States by a trillion dollars over the next decade while improving patient well-being. This estimate relies on two key assumptions. First, we believe that as much as 50% of healthcare payments could be outcomes-based by 2018. Second, our research and experience indicate that if implemented thoughtfully, outcomes-based payment can reduce known sources of waste and inefficiency (redundant care, misuse, etc.), resulting in 10% or greater decrease in targeted spending. Over time, outcomes-based payment also has the potential to mitigate several core drivers of excessive medical cost inflation (e.g., it discourages low-value, expensive technologies and encourages primary/secondary prevention).

The uncertainty of the future of the healthcare industry and its ability to rein in escalating costs will remain a focal point of private insurance and CMS as these nascent attempts at cost reduction and quality improvement controls are developed further and fine-tuned.  One point is certain across all parties- behaviors must change in order to realize monetary savings.  With better quality care at lower costs, more positive impacts will be made to the patient’s general wellness and health, causing a ripple effect that ultimately reduces costs for all. If quality-outcomes reimbursement is the impetus to better quality healthcare and lower costs, it will prove to be one step of many towards repairing the state of healthcare today.