Innovation around healthcare payment is in the air these days, especially in California, where hospitals have been a wellspring of new payment approaches for the past three decades, says Anne McLeod, senior vice president for health policy at California Hospital Association. Here Ms. McLeod makes eight points on how California hospitals are thinking about innovation in healthcare payments.
1. A time to innovate. "This is the time when hospitals and health systems have the opportunity to really step up as leaders in the healthcare industry," Ms. McLeod says. "It is an time for hospitals to pursue innovations and cost-effective solutions."
2. Hospitals should look beyond ACOs. Ms. McLeod thinks accountable care organizations will likely be just one form of innovation. For example, the healthcare reform law says Medicare ACOs must have at least 5,000 beneficiaries, which would disqualify many some hospitals. And when regulations for ACOs are promulgated, there may be more limitations on how ACOs can function.
3. Expect more innovative models. The new Center for Medicare and Medicaid Innovation, another creation of the reform law that is expected to begin operations next year, will foster pilot programs to test other models of care delivery besides ACOs. Ms. McLeod thinks the CMI will be an avenue for hospitals to experiment, using building blocks like the medical home model and forms of patient-centered care. The reform law sets aside $10 billion for CMI activities from 2011-2019.
4. Try disease-specific programs. Hospitals can get their feet wet by focusing on one area, such as a disease-specific program. For example, UCLA Medical Center operates a bundled payment program with physicians for kidney transplants. The same kind of arrangement might work for other specialties such as orthopedics, Ms. McLeod says.
5. Capitation still has a role. ACOs' "shared savings" are a step beyond the capitated payments that California providers pioneered in the 1980s and into the 1990s. But Ms. McLeod says pure capitation, which pays a strict per-member, per-month rate, were too risky for many hospitals and physicians, even in California. Capitation continues in the Golden State because payors "don’t want to be at the mercy of fee-for-service medicine," Ms. McLeod says, but "I don’t believe most folks want plain vanilla capitation all over again." Instead, hospitals and physicians might accept capitated payments plus some form of stipends or quality incentives to provide some predictability and stability.
6. Physician alignment with a twist. As hospitals in other states buy up practices, most California hospitals have been on the sidelines due to the state's ban on the corporate practice of medicine, which prevents hospitals from owning practices. Public hospitals, including the University of California system hospitals, are exempt from the ban and large hospitals systems can put physicians into medical foundations, but foundations require a minimum number of physicians, a research component and other attributes, which are beyond the means of smaller hospitals and health systems in the state. The average California hospital will need to come up with other arrangements to partner with physicians, Ms. McLeod says.
7. Limited funds for innovation. Innovation requires money to buy IT systems, engage in planning and add extra personnel, but payments are shrinking. Medi-Cal, California's Medicaid program, has "abysmal" payments, Ms. McLeod says. It pays hospitals $3,100 per patient, compared with the U.S. average of $5,500 per patient for Medicaid. In 2009, there was a $4.6 billion shortfall between Medi-Cal payments and hospital costs to treat Medi-Cal patients. California hospitals also have to contend with high labor costs due to unionization and expensive state mandates to meet nurse-staffing ratios and to retrofit structures to withstand earthquakes.
8. The net effect of reform is unclear. Hospital trade groups were strong proponents of healthcare reform and were willing to accept a trade-off. Hospitals have the opportunity to be innovative and they will get millions of new patients, but the reform law also cut $17 billion in Medicare payments for California hospitals alone in the next 10 years. "How hospitals will fare under healthcare reform remains to be seen," Ms. McLeod says.
Find our more about the California Hospital Association.
1. A time to innovate. "This is the time when hospitals and health systems have the opportunity to really step up as leaders in the healthcare industry," Ms. McLeod says. "It is an time for hospitals to pursue innovations and cost-effective solutions."
2. Hospitals should look beyond ACOs. Ms. McLeod thinks accountable care organizations will likely be just one form of innovation. For example, the healthcare reform law says Medicare ACOs must have at least 5,000 beneficiaries, which would disqualify many some hospitals. And when regulations for ACOs are promulgated, there may be more limitations on how ACOs can function.
3. Expect more innovative models. The new Center for Medicare and Medicaid Innovation, another creation of the reform law that is expected to begin operations next year, will foster pilot programs to test other models of care delivery besides ACOs. Ms. McLeod thinks the CMI will be an avenue for hospitals to experiment, using building blocks like the medical home model and forms of patient-centered care. The reform law sets aside $10 billion for CMI activities from 2011-2019.
4. Try disease-specific programs. Hospitals can get their feet wet by focusing on one area, such as a disease-specific program. For example, UCLA Medical Center operates a bundled payment program with physicians for kidney transplants. The same kind of arrangement might work for other specialties such as orthopedics, Ms. McLeod says.
5. Capitation still has a role. ACOs' "shared savings" are a step beyond the capitated payments that California providers pioneered in the 1980s and into the 1990s. But Ms. McLeod says pure capitation, which pays a strict per-member, per-month rate, were too risky for many hospitals and physicians, even in California. Capitation continues in the Golden State because payors "don’t want to be at the mercy of fee-for-service medicine," Ms. McLeod says, but "I don’t believe most folks want plain vanilla capitation all over again." Instead, hospitals and physicians might accept capitated payments plus some form of stipends or quality incentives to provide some predictability and stability.
6. Physician alignment with a twist. As hospitals in other states buy up practices, most California hospitals have been on the sidelines due to the state's ban on the corporate practice of medicine, which prevents hospitals from owning practices. Public hospitals, including the University of California system hospitals, are exempt from the ban and large hospitals systems can put physicians into medical foundations, but foundations require a minimum number of physicians, a research component and other attributes, which are beyond the means of smaller hospitals and health systems in the state. The average California hospital will need to come up with other arrangements to partner with physicians, Ms. McLeod says.
7. Limited funds for innovation. Innovation requires money to buy IT systems, engage in planning and add extra personnel, but payments are shrinking. Medi-Cal, California's Medicaid program, has "abysmal" payments, Ms. McLeod says. It pays hospitals $3,100 per patient, compared with the U.S. average of $5,500 per patient for Medicaid. In 2009, there was a $4.6 billion shortfall between Medi-Cal payments and hospital costs to treat Medi-Cal patients. California hospitals also have to contend with high labor costs due to unionization and expensive state mandates to meet nurse-staffing ratios and to retrofit structures to withstand earthquakes.
8. The net effect of reform is unclear. Hospital trade groups were strong proponents of healthcare reform and were willing to accept a trade-off. Hospitals have the opportunity to be innovative and they will get millions of new patients, but the reform law also cut $17 billion in Medicare payments for California hospitals alone in the next 10 years. "How hospitals will fare under healthcare reform remains to be seen," Ms. McLeod says.
Find our more about the California Hospital Association.