Using outcomes-based payment to address the US healthcare financing crisis
The Trillion
Dollar Prize
Using outcomes-based payment to address the
US healthcare financing crisis
Tom Latkovic
February 2013
The Trillion Dollar Prize
Using outcomes-based payment to address the US healthcare financing crisis
3
Contents
Introduction4
Challenges to driving cost‑reducing innovation
8
Low-hanging fruit: scale existing best practices
9
The harder stuff: treat chronic illness, coordinate care
11
Future innovations
11
Why cost-reducing innovation is so difficult
12
The first step: re-Set expectations and align payment
14
Expecting more from providers
15
Comparison with today
17
Aligning payment with expectations
18
Why the emphasis on retrospective episode-based payment?
21
Ensuring that outcomes-based payment delivers
Significant
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25
Scope25
Stable26
Striving but practical
27
Sustainable27
Supportive28
Synch with consumers
Immediate actions
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Introduction
The Trillion Dollar Prize
Using outcomes-based payment to address the US healthcare financing crisis
5
Executive summary: There is growing consensus that transitioning to outcomes-based payment is fundamental to driving cost-reducing innovation among healthcare providers and achieving a financially sustainable healthcare system. We believe that successful implementation of outcomesbased payment could lead to a trillion dollars of cumulative savings in the United States over the next decade. The challenge is how to ensure that implementation succeeds. Our research indicates that there are eight fundamental requirements that payors must meet as they transition to outcomes-based payment, starting with a redefinition of what they expect from 21st-century care providers and implementation at a scale large enough (in terms of money at stake, support given, breadth of providers involved, etc.) to achieve impact. Although many useful payment initiatives are currently underway, few of them meet all, or even most, of these tests. To remedy the situation, we suggest that payors consider setting even bolder aspirations for their payment initiatives, find ways to collaborate with other payors, and expand the resources dedicated to the task.
Consensus is emerging that the long-term healthcare financing challenge facing the United
States can be addressed only by changing the way we pay for healthcare. Most everyone agrees that we must migrate from a largely fee-for-service (FFS) system that pays for activity to one focused on delivering the best patient outcomes at the lowest possible cost (an approach herein referred to as outcomes-based payment). Policymakers across political parties, most health economists, and most other stakeholders agree, at least conceptually, that paying for outcomes can play a foundational role in reducing low- or no-value care while improving care quality.
We concur and believe that a compelling economic case exists to aggressively transitioning to outcomes-based payment. The financial and human capital that is now being poorly utilized for healthcare could be used to meet other important societal or individual needs.
Furthermore, FFS payment often makes it more difficult for healthcare workers to fulfill their mission, because it often rewards failure while failing to reward healing. For example, many hospitals earn additional income from preventable readmissions. Physicians are typically given the same reimbursement for a failed procedure as for a successful one.
Our analyses suggest that aggressively migrating to outcomes-based payment has the potential to reduce healthcare spending in the United States by a trillion dollars over the next decade while improving patient well-being. This estimate relies on two key assumptions.
