Cutting Health-Care Reimbursement Costs by Putting Doctors on a Budget

Cutting Health-Care Reimbursement Costs by Putting Doctors on a Budget

What if you went to your doctor, suffering from congestive heart failure, and your doctor had been given a limited budget from your insurance company to treat you? If he were to go over cost, he would pay out of his own pocket. If he spent less than the allotment — and you were satisfied with your treatment — he would keep some of the change.

This is the guiding principle of a pilot payment model called Prometheus, which, by January 2010, will be used to calculate insurance coverage for 80,000 workers in Rockford, Ill., and has already caught the eye of the White House. Why Because it turns the current insurance reimbursement system on its ear. See the top 10 medical breakthroughs of 2008.

A major problem with American health care today is what policy experts call “perverse incentives.” Doctors and hospitals bill insurers for every individual service — every office visit, MRI or hour of operating-room time — a “fee for service” model that drives health-care inflation by rewarding providers who order potentially unnecessary tests, perform potentially unnecessary surgeries and even make mistakes. A hospital readmission caused by avoidable complications just means more billable expenses.

In contrast, Prometheus, funded by a $6 million grant from the Robert Wood Johnson Foundation, calculates compensation for hospitals and doctors based not on the specific treatments a patient receives but on the care a patient should receive “per episode.”

Taking the congestive-heart-failure example, here’s how the payment scheme would work: A slightly overweight 60-year-old heart-failure patient comes in with coronary-artery disease and acid-reflux disease. According to a Prometheus algorithm, this patient should cost $20,750 a year to treat — including office visits, medications, blood-pressure monitoring and an allowance for complications. The incentive for the heart patient’s doctor to spend less than $20,750 is that he gets to keep a portion of the difference . And the best way to keep costs low is to offer the best care: If the doctor is negligent in monitoring the patient’s condition or fails to counsel the patient fully about proper diet and exercise, that patient could have a heart attack — requiring more treatments — and the doctor would take a financial hit. “The more defects you prevent, the more money you make,” says Francois de Brantes, the health-payment-reform guru who coordinates Prometheus. “The fact that anybody has a leg amputated for diabetes” — something that’s preventable with proper treatment — “is revolting, so you make that a financial blemish.”

It’s a simple idea that makes sense in theory. And yet no patient wants to believe that his own doctor is this focused on the bottom line. While data indicate that up to 30% of U.S. health-care spending is for unneeded and even dangerous treatments, the truth is that most doctors aren’t purposely ordering up tests or treatments just for the cash. “The system is asking them to do what’s right for a system that lives off of excess, as opposed to what’s right for the patient,” says De Brantes. See pictures from an X-ray studio.

Doctors are quick to say that much of the 30% of excess health-care spending is on “defensive medicine” — providing extra care in an effort to avoid malpractice liability — but De Brantes counters that the Prometheus model creates budgets based on clinical-practice guidelines that, if followed properly, help protect providers against malpractice claims.

Still, overhauling the current health-payment system has other pitfalls. Back in 1983, Medicare initiated a similar plan, bundling payments for hospital stays, but the program acquired the unfortunate label “quicker but sicker.” Since hospitals were paid a certain amount of money for each patient no matter how long they stayed, many patients were discharged sooner than was prudent, which transferred the burden of care onto nursing homes and created a “mini-industry of readmissions,” according to Gail Wilensky, a former head of Medicare. “Redesigning the reimbursement system is not for the faint of heart,” says Wilensky. “This is in large part about changing the way doctors behave.”

Indeed, doctors have so far managed to avoid such reform in their own practices, and lawmakers may be running full speed into a minefield with any efforts to change their behavior. Physicians will accuse politicians of getting in the way of the doctor-patient relationship; devicemakers will say a “bundled” fee structure will force providers to use cheap, outdated equipment; and hospitals, already strapped for cash, will resist any reform that decreases their reimbursements.

In a recent speech to the American Medical Association, President Barack Obama urged an audience of physicians to get on board with bundled, per-episode care. “You entered this profession to be healers,” he said. “Now, that starts with reforming the way we compensate our providers — doctors and hospitals. We need to bundle payments so you aren’t paid for every single treatment you offer a patient with a chronic condition like diabetes, but instead paid well for how you treat the overall disease.”

With or without physicians’ support, the idea may be creeping forward. Last week, De Brantes was part of a group of health-payment reformers invited to the White House to explain how bundling works. Meanwhile, the federal Centers for Medicare & Medicaid Services recently started a three-year demonstration project that will provide bundled payments to hospitals and doctors at five sites for 37 common surgical procedures. The idea is that if hospitals and doctors are paid out of the same pot, they’ll coordinate services to be more efficient and cost-effective. The results could help determine how aggressively the Federal Government will end up pushing the bundled-payment model onto the entire Medicare system.

If that happens, health-care providers may have to put their money where their mouth is. They talk endlessly about delivering health care more efficiently and providing better preventive care — two essential factors for the reduction of overall health-care costs — but providers have been discussing the same factors as long as the idea of health reform has existed. Meanwhile, health-care costs, fueled by the “fee for service” model, are growing some 10% annually. In the end, the only way to get change may be to get real about the fact that, no matter how uncomfortable it makes us, health care and money are inseparable.

See how to prevent illness at any age.

Read “The Year in Medicine 2008: From A to Z.”