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Healthcare Revolution: Making Sense Of The Changing Reimbursement Model

27 18:16:21
Healthcare delivery is undergoing transformational change because of fiscal and legislative pressures. However, most people do not realize how far along the revolution in healthcare reimbursement has come, nor how far behind the healthcare delivery system's development is in comparison.

Many readers will recall the failed implementation of Healthcare Maintenance Organizations of the late 1990s. This attempt to create a wellness model of care to replace the fee-for-service model was a noble cause, but the confluence of pressures required to transform healthcare delivery in the US was not sufficient to allow this movement to gain critical mass. Perhaps the financial pressures were not enough to force patients and doctors to move towards accountable care, or perhaps the information technology infrastructure was not sophisticated enough to integrate care across all vested parties. Regardless of the cause of the collapse of the HMO movement, the fact remains that the 2000s are likely to be seen as a lost decade for the evolution of healthcare delivery in the US.

Fast forward to 2010 and the passage of the Patient Protection and Affordable Care Act. Although there were already significant market pressures moving towards value-based healthcare delivery, the ACA codified into law the requirement that our healthcare system move towards pay-for-performance and away from fee-for-service.

Just two years later, the Accountable Care Organizations formed by the ACA cover an estimated 10% of lives.1 How is it possible that a healthcare delivery model can change the motivating factors behind delivering care to 30 million Americans within just two years, when these organizations only cover 2.4 million Medicare beneficiaries? The answer is that, unbeknownst to most people, the quality metrics that drive ACOs interactions with patients not only apply to Medicare patients enrolled in the program. They cover ALL patients of physicians that are participating in an ACO.

Here's how it works: A physician joins an ACO so they can participate in sharing the savings that they generate by delivering better quality, lower cost care to the patients they serve. At the end of the year, the ACO gets a report card telling them how well they did in delivering care to their patients based on 33 quality measures. These measures grade providers on patient/caregiver communication, preventive care, how well the providers care for patients with chronic diseases, and how well providers coordinate patient care. If the providers get an "A" on their report card, then they are eligible to be reimbursed for as much as 60% of the decreased costs generated by caring for their Medicare patient population.

However, even though the shared savings are only based on the selected group of Medicare patients, the report card grade is based on the provider's performance on ALL their patients.

Accountable Care Organizations function like HMOs because they nudge providers to deliver healthcare to patients in a way that encourages wellness care and eschews the volume-based fee-for-service mentality of traditional health insurance.

But, the healthcare coverage revolution doesn't stop with ACOs. About 13.1 million Americans are covered under Medicare Advantage Plans2, which are also closely based on the HMO model. That accounts for an additional ~4% of insured patients.

Furthermore, about 74% of Medicaid recipients are on managed care plans3. Doing the math, this means that an additional 12% of Americans are covered as Medicaid HMO recipients.

Finally, about 16% of employer insured patients are also enrolled on an HMO.4 Again, doing the math, this translates into about 9% of Americans.

Add all this up, and the easily documented percentage of the US population covered under an accountable care model is at 35%. This number does not include other pay-for-performance hybrid models that most employers use today to try to help contain exploding healthcare costs.

Whether the perceived failure of HMOs in the last decade of the twentieth century was caused by a lack of pressure, the absence of adequate information technology, or from something else, the fact is that accountable care has snuck up on insured Americans, and most of them don't even know it yet.

1Becker's Hospital Review, November 26, 2012. "Study" ACOs Cover 10% of Americans" August 22, 2012. "13.1 million people, or 27% of participants, are in a Medicare Advantage Plan"

4Kaiser Family Foundation (

Copyright (c) 2013 Will Pettinger, BS, MBA