504900
research-article2013
FAIXXX10.1177/1071100713504900Foot & Ankle InternationalPinzur
FootForum
From Volume to Value . . . Part II
Foot & Ankle International® 2014, Vol. 35(3) 307 © The Author(s) 2013 Reprints and permissions: sagepub.com/journalsPermissions.nav DOI: 10.1177/1071100713504900 fai.sagepub.com
Michael S. Pinzur, MD1
In the last installment of the FootForum, I addressed the notion that the current radical changes in the health care delivery system are not unique but simply the extension of an evolution that had its foundation many years ago. The historical fee-for-service health care system is based on a very simple business model. Much like going to the grocery store, you simply pay for what you purchase when you make that purchase. The seller of that service, that is, the physician or hospital, makes a profit with each transaction. Health care insurance is simply a way to leverage the burden of that cost by shifting the risk from the patient and consumer to the insurance provider. The insurance company makes its profit by selling a sufficient number of insurance policies to a sufficient number of subscribers to create a pool of money sufficient to cover the cost of the health care service and provide a profit margin for the insurance company. The modern science of computer analytics allows both the buyer and seller to analyze their products to create efficiencies that will increase their profit margins. The dilemma for physicians is that the insurance providers figured this out long before we understood that data are power. We have been playing catchup to the analysts ever since. The first primitive attempt to modify the simple fee-forservice model was the development of health maintenance organizations (HMOs). The business premise of this model was to both limit access to physician specialists who provided the most expensive services and negotiate a discounted fee with the specialists who were going to provide that care. This was accomplished either by capitation or discounted fee-for-service. Most applications of this model were not strongly successful, partially due to consumers’ thinking that they were entitled to Bergdorf-Goodman services at Walmart prices. This led to dissatisfaction on both the provider and consumer sides. The most successful application of this business model was the Kaiser Permanente system, where the insurance provider controlled costs by owning the hospital and the outpatient clinics and employing the physician providers. As increasingly expensive technology multiplied the cost of providing health care, it became clear that there was not sufficient capital within the system to support both the increased costs of providing quality health care and increasing profits for insurance providers, hospital systems, and physician providers. Increasingly sophisticated computer software and analytics allowed the creation of increasingly sophisticated computer models of potential solutions. The
dilemma with this approach is that none of the stakeholders are offering to unilaterally absorb the necessary pushbacks in payment or profits. The next step in the evolution of our American health care system is going to be based on the interaction between those responsible for paying for health care and those responsible for delivering it. On the provider side, the ability to control costs and unify negotiations between payer and providers appears to be leading to the demise of private practice. In this complex model with decreasing margins, the health care system must control the costs associated with both inpatient and outpatient care as well as the proportion of that payment that is paid to the physician providers. Efficiency of scale is crucial for success, hence the consolidation of hospitals and hospital systems as well as the employment of physician providers. What about the payer side? The public sector cannot go on simply printing more money; hence, we face curtailment in payment for services. The for-profit insurance providers are trying to increase their margins by negotiating better contracts, but their real potential score is the development of accountable care organizations (ACOs). From the insurance provider’s perspective, the ACO is the perfect riskshifting application of computer analytics. Efficient data acquisition and negotiation of stringent contracts are obvious strategies for success. The ACO model provides a guarantee of the margin. This model takes advantage of analytics to come up with an amount of money that it will cost to provide the services associated with the contract. The value associated with the ACO model to the insurance provider is that the provider assumes none of the risk. It takes a guaranteed profit and shifts the risk to the providers. What is the next step in the evolution of our health care system? It is difficult to say. One thing that is certain is that complex computer models and high-powered analytics are going to be the key factors in the future direction of American health care. The FootForum is very interested in your thoughts on these developments. Please contact the FootForum at [email protected].
1
Loyola University Health System, Maywood, IL, USA
Corresponding Author: Michael S. Pinzur, MD, Loyola University Health System, Orthopaedic Surgery, 2160 South First Avenue, Maywood, IL 60153, USA. Email: [email protected]
Downloaded from fai.sagepub.com at Northeastern University on March 25, 2015
research-article2013
FAIXXX10.1177/1071100713504900Foot & Ankle InternationalPinzur
FootForum
From Volume to Value . . . Part II
Foot & Ankle International® 2014, Vol. 35(3) 307 © The Author(s) 2013 Reprints and permissions: sagepub.com/journalsPermissions.nav DOI: 10.1177/1071100713504900 fai.sagepub.com
Michael S. Pinzur, MD1
In the last installment of the FootForum, I addressed the notion that the current radical changes in the health care delivery system are not unique but simply the extension of an evolution that had its foundation many years ago. The historical fee-for-service health care system is based on a very simple business model. Much like going to the grocery store, you simply pay for what you purchase when you make that purchase. The seller of that service, that is, the physician or hospital, makes a profit with each transaction. Health care insurance is simply a way to leverage the burden of that cost by shifting the risk from the patient and consumer to the insurance provider. The insurance company makes its profit by selling a sufficient number of insurance policies to a sufficient number of subscribers to create a pool of money sufficient to cover the cost of the health care service and provide a profit margin for the insurance company. The modern science of computer analytics allows both the buyer and seller to analyze their products to create efficiencies that will increase their profit margins. The dilemma for physicians is that the insurance providers figured this out long before we understood that data are power. We have been playing catchup to the analysts ever since. The first primitive attempt to modify the simple fee-forservice model was the development of health maintenance organizations (HMOs). The business premise of this model was to both limit access to physician specialists who provided the most expensive services and negotiate a discounted fee with the specialists who were going to provide that care. This was accomplished either by capitation or discounted fee-for-service. Most applications of this model were not strongly successful, partially due to consumers’ thinking that they were entitled to Bergdorf-Goodman services at Walmart prices. This led to dissatisfaction on both the provider and consumer sides. The most successful application of this business model was the Kaiser Permanente system, where the insurance provider controlled costs by owning the hospital and the outpatient clinics and employing the physician providers. As increasingly expensive technology multiplied the cost of providing health care, it became clear that there was not sufficient capital within the system to support both the increased costs of providing quality health care and increasing profits for insurance providers, hospital systems, and physician providers. Increasingly sophisticated computer software and analytics allowed the creation of increasingly sophisticated computer models of potential solutions. The
dilemma with this approach is that none of the stakeholders are offering to unilaterally absorb the necessary pushbacks in payment or profits. The next step in the evolution of our American health care system is going to be based on the interaction between those responsible for paying for health care and those responsible for delivering it. On the provider side, the ability to control costs and unify negotiations between payer and providers appears to be leading to the demise of private practice. In this complex model with decreasing margins, the health care system must control the costs associated with both inpatient and outpatient care as well as the proportion of that payment that is paid to the physician providers. Efficiency of scale is crucial for success, hence the consolidation of hospitals and hospital systems as well as the employment of physician providers. What about the payer side? The public sector cannot go on simply printing more money; hence, we face curtailment in payment for services. The for-profit insurance providers are trying to increase their margins by negotiating better contracts, but their real potential score is the development of accountable care organizations (ACOs). From the insurance provider’s perspective, the ACO is the perfect riskshifting application of computer analytics. Efficient data acquisition and negotiation of stringent contracts are obvious strategies for success. The ACO model provides a guarantee of the margin. This model takes advantage of analytics to come up with an amount of money that it will cost to provide the services associated with the contract. The value associated with the ACO model to the insurance provider is that the provider assumes none of the risk. It takes a guaranteed profit and shifts the risk to the providers. What is the next step in the evolution of our health care system? It is difficult to say. One thing that is certain is that complex computer models and high-powered analytics are going to be the key factors in the future direction of American health care. The FootForum is very interested in your thoughts on these developments. Please contact the FootForum at [email protected].
1
Loyola University Health System, Maywood, IL, USA
Corresponding Author: Michael S. Pinzur, MD, Loyola University Health System, Orthopaedic Surgery, 2160 South First Avenue, Maywood, IL 60153, USA. Email: [email protected]
Downloaded from fai.sagepub.com at Northeastern University on March 25, 2015
