Pandemic lays bare broken payment system, but there is hope in the rebuild
Written by Jason Helgerson
Fifty days out from the declaration of a national emergency, the once bustling American economy has ground to a standstill, and in some sectors, shifted into reverse. Consumer spending fell by 18% in the first quarter of 2020. Some level of contraction was predictable, given social distancing guidelines and stay-at-home orders that have altered so many facets of day-to-day life.
The nature of the spending decline, however, is perhaps less intuitive. Half of the decline in consumer spending is attributable to a reduction in health care spending. The budget gap for many hospitals and providers is almost certainly driven by a national halt on elective procedures, meaning that patients without health emergencies are not receiving services. The result is that many health care providers find themselves with little to no business during a pandemic and some long-term forecasts suggest it may be a while before business picks up. Analysts have even used the term “demand destruction” to describe the precipitous drop in health care spending, introducing the notion of a permanent downward shift in consumer demand. The concept of a “return to normal” may not apply to American health care, and maybe it shouldn’t.
The devastating financial impact of COVID-19 on the health care system was not inevitable, but the strain of this crisis has exposed faults in the foundation upon which the system was built. Specifically, the economic and moral perversion that is fee-for-service health care has finally come home to roost. As many national and state leaders have pointed out, however, unprecedented disruption to the status quo presents unique opportunities to learn and improve. Rather than strive to rebuild what has always been broken, perhaps this event can generate a national awakening to the fact that our “health” care system is really a “sick” care system in which providers survive and thrive only when people are sick and seek them out for care. The good news is that it doesn’t have to be this way, and some providers have already implemented more effective models.
Organizations that have left fee-for-service behind and embraced value-based payment and care will not be hurt by patients staying safe at home. Their bottom line is not reliant on illness, so they can remain focused on meeting patient and community needs. A group of 2,500 doctors organized together as an IPA under the leadership of Dr. Ramón Tallaj, called SOMOS, has risen to meet the challenges of COVID-19, and serves as an example of what is possible through the value-based care model.
The SOMOS doctors serve some of the most heavily impacted neighborhoods in the country in New York City, and they are not worried about demand destruction. Instead, doctors and staff at SOMOS are delivering meals, providing COVID-19 tests, expanding telehealth offerings to deliver care while keeping patients out of emergency rooms, and pushing vital information out to their patients and communities.
The reason these doctors don’t have to worry about their finances even as publicly-traded hospital systems flounder, is that they long ago gave up on fee-for-service health care and switched to value-based payment. Over several years, and long before such contracting was even seen as innovative, doctors at SOMOS negotiated contracts with their insurance company partners that moved them into capitated arrangements. In other words, doctors are paid on a per-capita basis – a per member, per month fee – that is not connected to actual service utilization. As a result, doctors at SOMOS are not punished when their patients do the right thing and stay home during this crisis. The indefensible correlation between illness and payment is broken, and what is good for the patient is no longer bad for the doctor.
The financial stability provided by value-based arrangements allows doctors and staff at SOMOS to focus all available bandwidth on the provision of vital services to highly vulnerable and stressed populations. Their work provides a blueprint for what American health care can and should look like post COVID-19.
In short, the country needs more SOMOS’s and fewer providers like the ones now requesting financial assistance with the fee-for-system now in tatters. The logic pushing change is irrefutable - if an ounce of prevention is indeed worth a pound of cure, then why do the economic scales of health care operate by reverse metrics? Value-based care shifts the primary focus from getting people healthy to keeping people healthy. COVID-19 will hopefully be the wake-up call that drives more and more health care providers to embrace the value-based world, abandoning the failed model of fee-for-service “sick” care.
