Moving from Volume to Value and What It Means for Physicians

The trade magazines are filled with stories about how the new payment strategies, mostly introduced by Medicare, stress the value of the services rather than the volume of the services. What this really means is that most payers, public and commercial, have decided that they really can’t control utilization and want providers (specifically physicians) to better control the care that patients receive.

Hospitals saw a similar shift in strategy during the 1990s as their reimbursement moved from a cost-based model (if it cost a lot, you got a lot) to diagnosis related groups (DRGs) that paid a flat amount based on the patient’s diagnosis, regardless of the volume of services rendered. Physicians, of course, continued to be paid on a per-service basis and they had no financial incentive to either limit what was done for the patient nor how much hospital-based services cost.

The title of the legislation behind this change, the Affordable Care Act, really explains the intent; lower the cost of care. If we can’t pay less to physicians and hospitals for the care they render (remember the recent 27 percent drop in physician payments via the SGR formula that was avoided?), then we need to pay for fewer service. This might seem like a version of rationing that would be politically unacceptable, so we call it value. Pay for what is needed, not wanted, and provide that care in the least costly settings.

This shift requires that physicians play a dominant role in the coordination of the care process and, if structured properly, the model can provide significant financial incentives for success. Hospitals have responded to this evolving care model by increasing the number and mix of employed physicians with the thought being that this would provide a higher degree of control over the care process. This strategy fails to recognize that many physicians who understand the need to make care more efficient and are leaders in the delivery of high quality care simply don’t care to become employees.

What, then, should physicians do in response to this inevitable shift in the way medical care is reimbursed?

• Employment - A growing number of physicians, especially those just out of training and those in certain specialties like cardiology, find the uncertainties associated with private practice unattractive. While incomes can be very attractive in hospital-controlled practices even this may change in the future.

• Business as usual - This might work for a while but the pressure to control cost is substantial and patients, who are struggling to afford health insurance, are more willing to see a limited number of physicians in return for savings. Cost will trump loyalty. Payers will simply exclude physicians who are not part of the value process.

• Get organized - I’m not suggesting a union, but there are anti-trust waiver options available for physicians to create a quality-driven network that can jointly partner with payers and, as a result, drive most or all of care savings into their pockets, rather than the hospital. This will be the topic of my next post.

An inquiry generated by my last blog post on health reform and physicians asked a simply question, “What should we do”? My suggestion is that physicians, employed or private, need to begin the discussion of how they want to respond to the inevitable changes underway in how care is purchased. They can be leaders or followers but the leaders will get to set the rules. Physicians have an opportunity to regain their dominant role in the care delivery process and, while hospitals can be valuable partners, they will be the ones setting the rules and deciding how savings are shared.