Fee-for-service must go

After speaking with CEOs and CFOs across the country I am convinced that the strategic direction of most healthcare providers is currently very murky. Yet they would agree that change is occurring all around them with healthcare organizations facing the deepest transformation the industry has ever known. I question why we are not seeing the preparation for change that one would expect in such circumstances.

My hypothesis is that the Affordable Care Act has done nothing to alter the underlying methodology of reimbursement. It’s just business as usual at lower rates. Although a couple of minor trends have emerged, most organizations have taken a “why should I change as long as I receive fee-for-service and can manage my costs” attitude.

A few outlier organizations have taken an aggressive approach by building networks, buying insurance licenses, and competing for dollars. But take it from someone who’s been there, this approach is filled with land mines along the way. Start by examining your financial war chest. Do you have the means to compete with behemoth insurance companies? Then ask if you have the physician structure, governance, and political relationships to be successful?

Still other health care leaders are challenged to make the right choice between affiliations, mergers, acquisitions, or how fast they can get to retirement. Believing that there are not massive and disruptive changes coming to health care reimbursement is a career limiting belief.

The current model in which cost is a function of price times volume times population is simply not sustainable. In healthcare we know that efforts to drive down price simply lead providers to an increase volume which then drives an increase in total cost. Under health care reform we now have two elements driving the expansion of volume–price reductions and the expansion of the population with access to healthcare through the new health insurance marketplaces. Together these two factors will continue to explode the cost side of the equasion.

I believe that reimbursement methodologies must change. Successfull providers will be prepared to manage a population and manage the health behaviors of the consumer, employer, and their employees. Successful organizations are preparing for changing reimbursement by preparing for prepaid financial management of healthcare services.

Until recently I would have said that these changes would take place over the next 3 to 5 years. Now I believe that change is rapidly approaching. We no longer have the luxury of a three to five-year transition. And denial is not a strategic direction.


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Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts.