SUSTAINABILITY OF THE FEE-FOR-SERVICE MODEL (OR NOT)

David Gruber MD, MBAMay 16, 2014

U.S. HEALTHCARE IS INEFFICIENT AND INEFFECTIVE

Cost ($B)

Unnecessary services $210

Inefficiently delivered services 130

Excess administrative costs 190

Prices that are too high 105

Missed prevention opportunities 55

Fraud 75

Total $765

Source: The Healthcare Imperative: Lowering Costs and Improving Outcomes, 2010 Table S-1. Adopted by National Academy of Sciences from IOM Workshop Summary.

• Misaligned financial incentives• System focus on acute intervention rather than the continuum of care• Inadequate, if any consumer (patient) and caregiver engagement• Limited price (oligopolistic) competition

LIMITATIONS OF FEE FOR SERVICE REIMBURSEMENT

– Focus on volume not value– Fosters fragmentation not collaboration on the full continuum of care– Hospital-centricity driving physician acquisitions (i.e., not site-neutral)– Procedural bias of the Resource Based Relative Value Scale– Cognitive services devalued– Administrative complexity and waste– Subject to industry lobbying

FEE-FOR-SERVICE DOES NOT REWARD PREVENTION

1995 2000 2005 2010 2015 2020 2025 2030100

120

140

160

180

118

125

133

141

149

157

164

171Chart Title

Number of People With Chronic Conditions (in millions)

84%

16%

Chronic condi-tionsNo chronic conditions

Healthcare Spending by Patients With Chronic Conditions

Sources: Medical Expenditure Panel Survey, 2006; Wu, Shin-Yi and Green, Anthony. Projection of Chronic Illness Prevalence and Cost Inflation. RAND Corporation, October 2000.

Chronic respiratory infections

Asthma

Eye disorders

Diabetes mellitus

Diseases of the heart

Non-traumatic joint disorders

Other upper respiratory disease

Disorders of lipid metabolism

Hypertension

0% 5% 10% 15% 20% 25% 30% 35%

10.0%

10.1%

11.2%

12.6%

13.5%

16.5%

19.2%

22.3%

33.3%

Percentage of People With Specific Chronic Conditions

1 2 3 4 5+0%

5%

10%

15%

20%

25%22.3%

11.8%

7.1%

3.9%4.8%

Number of Chronic Conditions

% of People with Multiple Chronic Conditions

FEE-FOR-SERVICE DOES NOT REWARD CONSUMER (PATIENT) ENGAGEMENT

30%

40%

15%

5%

10%

Genetic predispositionBehavioral patternsSocial circumstancesEnvironmental factorsHealth

Proportional Contribution to Premature Death

Source: Schroeder. We Can Do Better. NEJM 2007;357:1221-1228, Figure 1 adapted from McGinnis, et al. The Case for More Active Health Policy Attention to Health Promotion. Health Affairs 2002; 21:78-93; and CDC, National Health and Nutrition Examination Surveys (NHANES)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1960 1970 1980 1990 2000 2010

Obesity Smoking

% Adult Population

FEE FOR SERVICE DOES NOT RESULT IN VALUE CREATION

Low value

Limited ROI

Minimal quality

standard

High value

High

Cost

Low

QualityLow High

EMERGING TECHNOLOGY MUST ASSUME A RISK-BASED ECOSYSTEM

Telemedicine

Internet/Mobile ApplicationsAdvanced Analytics

Remote Monitoring

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