The Rocky Road To Payment Reform

Nancy Kane, Harvard School of Public Health

We keep hearing that the transition from fee-for-service medicine (in which payments are linked to procedures) to so-called global payments (more of a lump sum system) will be a “sea-change” (origin, Shakespeare’s “The Tempest,” 1610) for hospitals and physician groups.


WBUR’s Martha Bebinger called Nancy Kane, who knows hospitals inside and out and is a Professor of Management at the Harvard School of Public Health, to ask what will be so tough about the transition. Professor Kane outlined the three main components of this cultural shift. Martha paraphrases the conversation here:

1. The Money – Tracking the Flow of Dollars

Hospitals or physician groups will get a multi-million dollar fixed payment for a specific period of time (a month, a year) and have to decide how to channel the money. This raises several critical questions.

–For instance, do primary doctors get a larger slice of the pie?

–How will the pie be paid out to each provider type (primary care, specialists, hospitals, post-acute providers)

–If the hospital or physician group has a surplus at the end of the year, on what basis is that money shared? What kind of behavior do they reward?

–If the hospital or doctors group goes over budget, whose income takes a hit?

–How do doctors and hospitals deal with patients who want or need care outside their network? Do they hire a few specialized surgeons to fill in gaps in care? Can a small community hospital negotiate a low rate with a top neurological surgeon at Mass General?

2. The Care – It has to Change

Hospitals and physicians will no longer get paid based on how much they do regardless of quality. The goal is to make sure people are getting the best care for the least cost. This may mean doing fewer procedures or tests and less imaging, which runs counter to the training of many doctors. Doctors will have to collaborate and make treatment decisions based on evidence, not “eminence.” There may be clinical guidelines about when a patient goes to a community rather than a higher level hospital.

Providers who don’t have “medical management” and “specialty teams” will have to create them. These teams will help decide what information doctors report and how to measure a physician’s performance (some of this is spelled out in the global payment contracts providers sign with insurers). Someone will have to enforce standards with doctors and manage physicians who are spending more than others. The hospital and physician group will need a strategy for taking care of high-risk patients and those with a chronic disease.

All of this will require a major re-education, re-training effort for doctors and….

3. The Patients – Bringing Them on Board

To manage a patient’s care, doctors will need to persuade them to pick one primary care doctor and follow his or her advice. What will hospitals and doctors do to win patient’s loyalty: home visits, email messages, free valet parking (as several local hospitals are doing)?
Doctors would be wise to use more shared decision-making, where they present patients with alternatives and encourage them to make their own decision about the treatment they prefer.

Does the insurance company work with providers here to improve a patient’s health through wellness programs, benefit redesign (for example, higher co-payments receive care outside their primary doctor’s affiliated network) or helping providers manage high risk patients.

Should patients know that their care is paid for under a budget and how do doctors explain this?

We at WBUR and CommonHealth will be tracking these changes with hospitals and physicians who are learning this new culture. What do you want to know?

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  • Josh Archambault

    Martha and Rachel:
    We often hear payment reform and accountable care organizations in the same breath, so I would be curious to have you explore:
    1) The increased risk management role that doctors take on during payment reform and with accountable care organizations. Are all doctors in a hospital or part of a group practice ready to take over that role? I believe insurance companies currently hold most of this risk.

    2) What will the new role be for insurers? If in 10-15 years our medical system is fully global payments based (one payment for a patient for all care), and the risk has been passed onto providers, are insurers left as bill processing companies? How do they evolve?

    3) Exploring the implications of the different options for setting payment levels. Will a government board do that, will an independent industry group, etc? Will research or training hospitals be funded in a different manner? Will there be differences for geographic differences, etc?

    4) The legal barriers moving towards payment reform and ACOs. If you haven’t seen it– a good place to start is the American Hospital Association’s letter to the Feds on the legal barriers to clinical integration and their proposed solutions. Found here:
    A few of these would have local implications, and I have yet to hear these concerns being discussed here.

    5) Finally, payment reform discussions always seem to focus on the importance of primary care doctors and that respect (in other words money) will be once again be returned to these doctors. I wonder if we might be missing the forest for the trees here, and an opportunity exists to rethink health care delivery. It would be interesting to explore if the delivery of care could be changed under payment reform so that doctors place a more specialized role and physician assistants would take a more prominent role in interacting with patients on a regular basis.

    Thanks for your work on this complex issue.
    Josh Archambault
    Pioneer Institute