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Understanding Healthcare Payment Methodology

April 10, 2018
How does healthcare payment methodology work in light of the four stakeholders of healthcare finance? How can self-funded employers make the art and science of medicine valuable for themselves and their employees?
We recently interviewed Peter Gallitano, a healthcare executive with an academic background in pre-med and finance and professional experience in the clinical, financial, operative, and tactical components of medical providers.
With regard to gaining value in healthcare, Peter believes all four stakeholders need a system that creates value for themselves and each other.

How have healthcare payment methodologies evolved over the last 50 years?

During the Great Society, we first developed Medicare and Medicaid, which were structural changes to the system. That shifted into cost-based reimbursement that led to a hospital building boom. Then came indemnity plans or insurance collectives, which still exist in various forms today. Rate settings came next, allowing the government to set rates on costs.
To save money, the government allowed private insurers to act under an HMO that financed care with discounts. This evolved into fee-for-service, which gave providers something to aim for in terms of performance. That led to a renewed focus on quality of care.
Eventually, the state government took a seat at the healthcare table in Massachusetts under Romneycare. Later, with the establishment of Obamacare, the federal government also claimed a place. These programs marked a refocus on care.
Today, the healthcare stakeholders are asking: How do you refocus on care instilling value which is both price and quality into the dollars that we pay as individuals, purchasers, and employers?

Who are the four stakeholders in healthcare finance?

  • Patients - The people receiving healthcare from a provider.

  • Providers - The hospitals, doctors' offices, therapists' offices, and practitioners who give care.

  • Plans - The insurers who underwrite the cost of healthcare.

  • Purchasers - Employers who purchase health insurers for employees as well as the federal government.

How have we as a nation neglected the root cause of the cost drivers?

"When I was young," Peters said. "I truly believed there was shortfall of the system. In a non-judgment zone, as I look at that past history and the nation currently, it's really the complexities and the sheer number of participants."

Complexity is both the root cause of the problem and the seed to the solution for the future.

When we talk of medicine, we bifurcate it into both an art and a science. The art of care is directed toward the individual person's unique needs. The science of it is that our organ systems are pretty much standardized across the human race. So we can have standardized, evidence-based approach to care, too.

If you could develop PeterCare to align interests and maximize value, how do you see that playing out?

"One person at a time," Peter says, "and all at once. I'm going from both ends."
How do you practically do that?
"You have to look at who your population is," Peter says. "Selfishly, and this is a good dovetail into behavioral economics, my population is Peter. In my best interests, I do what my grandmother tells me to do: Go to bed early. Eat right. Exercise. But as a middle aged male, there are certain themes, precautions, or activities I should incur based on evidence-based medicine. As an individual, I have to deal with both."
On the individual level, Peter's grandmother's advice would solve a lot. At the macro level, it falters.

How can self-funded employers help assure greater value for all their stakeholders?

  1. Talk to your brokers. Ask, "What do I have control over in the short, medium, and long terms?"

  2. Inject rational consumerism into employees' decision making. We can save dollars by helping a prudent layperson make rational choices by removing computational limitations from fear and greed. Every one of the stakeholders saves.

This blog post is based off a podcast interview with Don McCully. To hear this episode, and many more like it, you can subscribe to Healthcare Simplified.


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