As the US grapples with the escalating costs of healthcare, the Department of Health and Human Services (HSS) and The Center for Medicare and Medicaid Services (CMS) are seeking to redefine traditional payment mechanisms for healthcare. Historically surgical care has been reimbursed as a fee-for-service model that pays a negotiated rate for care in a fragmented capacity. As such, the facility, the surgeon, the anesthesiologist, the physical therapist and visiting nurse all separately bill for their services and each bill must be separately adjudicated by a private insurance company or by CMS. This fee-for-service system has not lent itself to cost-effective care nor standardization of costs across hospitals or geographic regions. In other words, the cost of a total knee replacement can vary by thousands of dollars between hospitals that are located within 10 miles of each other. Furthermore, the quality of care delivered by separate institutions in terms of complications and outcomes has, to date, not been reconciled with the cost of care. This prevents those who purchase health care to act as engaged consumers as occurs in standard markets such as shopping for a care or a flat screen TV.
Value-based care is a new model being proposed by both CMS and private insurance companies. The principle behind this model is that the cost of care should be reconciled with the quality of care. Such a model incents physicians and health care systems to provide efficient cost-effective care that maximizes value and minimizes wasted and unnecessary care. There are several problems with such a model that include the following:
- The value equations (quality/cost) can be gamed by keeping quality constant while just reducing the price of care. Because care is delivered at a granular level by care providers, this tends to reduce payments to the front-line healthcare workers while keeping the administrative costs of care more constant. This has never proven to benefit quality.
- Quality is often not defined by patient functional outcomes, but by metrics that equate with cost. For instance, surgical complications requiring further surgery (such as infections) and hospital readmissions after joint replacement both increase the cost of care. These can be avoided by cherry-picking patients that are less likely to experience complications based on characteristics such as body mass index, medical comorbidities, or other social, emotional and economic factors. This may lead to some patients losing access to care because surgeons and health systems are unwilling to assume the risk associated with their care.
- Cost remains opaque and hard to measure. While hospitals and insurance companies are facing a mandate from the government to publish their prices for certain medical and surgical procedures, compliance with this mandate is not uniform at this point and health systems may collude to keep the costs of care high to subsidize the administrative burden of care.
What matters to those undergoing joint replacement is less pain, faster recovery and better function. These metrics unfortunately do not yet bend the value curve in a manner that incents physicians, providers and health systems to design cost effective care in a manner that maximizes these patient-specific outcome measures. Our AVATAR program is outcomes focused. Inherent in this model is a focus on limiting complications through best practices and customized concierge care. We believe that value should be defined by the patients not by the payers. The current value-based system does not care if 20% of total knee replacement patients have a fair or poor outcome as long as the cost of care is within a defined target range. We believe this approach is flawed and our AVATAR program takes a different approach that defines quality by the end-result and not the price tag.