Reducing Friction In Healthcare Payment

Bundled Payments

In a NYT article dated May 15, 2017, A Whistle-Blower Tells of Health Insurers Bilking Medicare, journalist Mary Williams Walsh brought attention to the latest instance of insurance companies "gaming" healthcare. According to the article, UnitedHealth had made patients appear sicker than they were, "by scouring patients' health records electronically and finding ways to goose the diagnosis codes."

"The sicker the patient, the more UnitedHealth was paid by Medicare Advantage - and the bigger the bonuses people earned," whistle-blower Benjamin Poehling was quoted as saying in the article. Not long after, a spokesman for UnitedHealth rejected Poehling's allegations.

This is one of the most recent examples of the friction that exists in the United States' intricate healthcare payment system.

The current situation with Medicare Advantage has come out of the need to fix the traditional Medicare program which compensates doctors directly for the procedures they perform--something that creates inflated cost and over-treatment incentives. In Medicare Advantage, the government contracts with insurers to manage healthcare for the elderly, paying insurers a yearly fee for each enrolled member. Consequently, the fee is higher for patients more recently treated for particular conditions. Public knowledge of the methodology gave providers the informational incentive to diagnose, sometimes when there is nothing wrong at all.

General uncertainty remains in Washington surrounding how healthcare reform might address payment. Though employers are sure to be affected , there is a growing body of evidence that suggests they may also be influential. A Health Affairs blog post by Suzanne Delbanco and Andrea Elizabeth Caballero suggests that the path to successful payment innovation lies within the private sector. According to a 2015 Health Insurance Census report , approximately 56 percent of the U.S. population is covered by employer-sponsored insurance. By this estimation, the private sector could and (perhaps should) have significant sway over healthcare reform and specifically, payment innovation.

"Anytime you introduce a method for payment and that method becomes public, you are presenting an opportunity for optimization. In this [latest] case [overdiagnosing to game the system] the health plan encourages payment based on reported severity. The more diagnosis codes doctors add to medical claims, the more money they're paid." This is Francois De Brantes, the Vice President & Director for the Center for Payment Innovation at the Altarum Institute, a nonprofit. As a healthcare professional who does work with self-insured employers, he sees the future for payment innovation in healthcare having to do with moving away from the fee-for-service payment to "something lumpier."

By lumpier, Francois is referring to the bundled payments model. "Having a patient pay for healthcare based around an entire episode of care as opposed to a single appointment is what is known as a bundled payment or package," says Francois. Bundled payments have been described as the middle ground between fee-for-service payment and capitation--paying a lump sum per patient regardless of how many services a patient receives). However, bundled payments are still not without flaws, specifically concerning data. "The difficult part with bundled payments," Francois explains, "has always been that it is notoriously tricky to set a price mechanism on the front end for entire episode of care." To have a legitimate price mechanism, data needs to be collected for each stage of an episode of care. The challenge to collecting this data is that it requires complex costly administrative resources."

Several health plans across the nation use technical analytic algorithms to power their bundled payments system. The way it works: algorithms calculate a budget for any patient episode that runs on the bundled payment model. After the payer and provider approves the budget, the actual expenses incurred can be calculated against the budget. To process a bundled payment properly, payments must be adjusted due to severity, based on data reported by both the patient and provider. The process is a long way from perfect because data between patient and providers is inconsistent and siloed, and difficult therefore to track.

Fortunately, Francois sees an alternative for their data infrastructure: a decentralized ledger. "If patients and doctors shared the same ledger to log health data during the episode, a payment mechanism could be validated from multiple sources. There is a significant opportunity for blockchain technology to disrupt of our current situation, which has created a significant administrative cost of managing healthcare transactions."

Francois' interest in blockchains is pragmatic, "Blockchains are an incredible way to reduce friction. In economics, friction is waste." It's prudent to think reducing this waste could trim healthcare spending to no small degree.

Like several other healthcare companies, Altarum recognizes that blockchain technology could offer the network capacity to create a seamless data reporting system coordinated around an entire episode of care. This might explain why Francois and Altarum have joined a blockchain POC with healthcare blockchain startup, Hashed Health. The work group (POC) will look to advance new payment solution concepts using blockchain and distributed ledger technologies. Additionally, these innovators are exploring how alternative payment models could be further improved by connecting payments with incentives and benefits design.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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