A new article published by Health Affairs today describes how
Improving efficiency and reducing costs often means reducing the number of services. What this study illustrates is how the current reimbursement system then creates a perverse counter-incentive – reduced services, under a fee for service system, then means lower revenue for providers.
Ok, one could argue (as I have): since the physicians are doing less, that frees up time to see other patients and replace the revenue. Perhaps – but there appear to be limitations in the study, and the short time period involved, that doesn’t address this question.
Interestingly, the VMMC team found that many of the care decisions being made by primary care physicians or in EDs contributed to higher costs by the VMMC specialists. The team made other interesting findings as well: for example, VMMC had an arrangement with the manufacturer of an expensive brand-name proton-pump inhibitor to include the drug’s oral form on the formulary in exchange for price discounts on other products, and
This article notes that “there is preliminary evidence that VMMC’s reengineering efforts have resulted in savings for purchasers, but it remains unclear the direction and degree to which VMMC’s margins will ultimately be affected.” Some changes that switched from high margin to low margin services will clearly impact the overall profit margin.
There were some changes negotiated with
This case is complex, in that it involves a hospital as well as a salaried physician group. It is interesting and thoughtful reading for all of us, as it portends what is clearly evolving. I think that we are moving away from the fanciful notion, favored by a certain political party, that market forces are the answer to health care costs. Market forces cannot be allowed to run amok here. Hospitals, legitimately, have high amortization costs that have to be recovered. Fixed costs are high.
This case focused on the costs to the employers and insurers, which is where the entire health care debate is really centered. For us in this forum and the
In addition to the online article (the link is above), Health Affairs online also published an interview with VMMC CEO Gary Kaplan on redesign.