Under the Knife: Public, Private Insurers Cut Into Fee-For-Service Health Plan

by Mark Friedman  on Monday, Apr. 9, 2012 12:00 am  

Public and private insurers are cutting into fee-for-service business plans.

Starting in the fall, doctors, hospitals and other health care providers in Arkansas will have a strong financial incentive to keep a lid on health care costs.

A new Medicaid reimbursement policy is expected to be the start of radical change in the delivery of health care, which has traditionally operated under a “fee-for-service” model that generates revenue for every patient contact and every procedure performed.

Under the new system that private health insurers expect to copy, Arkansas’ Medicaid program will fi-nancially reward health care providers who control costs while penalizing those who don’t.

Medicaid will set a target price for a procedure, such as a hip replacement. Doctors and hospitals who keep actual costs below that target price will then share in the savings, but those who go over the target price might have to pay.

“It requires health care providers to really think completely differently about the way they deliver care,” said Harold D. Miller, executive director of Center for Healthcare Quality & Payment Reform of Pittsburgh. “Rather than saying that if there’s something else I’d like to do for a patient, I can do it and get paid for it, as opposed to saying, there’s a budget … on what you need to spend on a particular patient.”

While the details are still being hammered out on the exact price points and the potential savings or penalties for health care providers, Medicaid is tiptoeing into the new model.

It will start with only six procedures of the more than 7,500 diagnoses that a person can have. Those six are:

  •  Pregnancy and delivery;
  •  Hip and knee replacements;
  •  Congestive heart failure;
  •  Ambulatory/upper respiratory infections;
  •  Attention deficit disorders; and
  •  Developmental disabilities.

Medicaid Losses

Sparking the payment reform were the projected losses of Arkansas’ Medicaid program. The joint federal-state program provides health insurance for about 750,000 disabled and low-income adults and children in Arkansas, about a quarter of the state’s population. The federal government covers about 71 percent of the Medicaid budget, which was $4.1 billion in the fiscal year that started July 1, 2009 and rose to $4.38 billion a year later. For the fiscal year that will end June 30, it is projected at $4.65 billion.

The Medicaid shortfall is forecasted at between $250 million to $400 million for the fiscal year that starts July 1, 2013, said Andy Allison, director of medical services for DHS and is its Medicaid director.

“The shortfall will only grow thereafter because the program is growing faster than the tax base,” he said. “Costs will not go down or slowdown if we just stand back and watch.”

But not all providers are cheering the proposed changes.



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