Sunday, July 28, 2019

Value Based Pricing in Medicine - A 'Stinging' Issue!


Some professionals and businesses get paid regardless of their outcome.  They are paid for their time and expertise.  For example, if you hire an attorney, unless you have a contingency fee arrangement, you will be billed regardless of the outcome.   If you sue a business because you allege a product you purchased is defective, but the business counters that you damaged it by using the wrong tools to assemble it, there is no guarantee that you will enjoy a legal victory.  However, if your lawyer has invested 20 hours of labor as your advocate, he or she will certainly enjoy a financial victory if an hourly rate is in place. 

Similarly, if your financial advisor, who is paid on commission, advises that you invest in a certain product, and the investment declines 10%, only one of you will take a major hit.  Guess who?
If you treat yourself to expensive theater tickets, but you find that the performance was dull and uninspiring, do you expect to be given vouchers for another show as you exit?

See my point?  In these instances, and so many others, we pay regardless of the outcome.  The concept of paying for results, which is much more attractive to the consumer, has yet to gain a solid footing in the commercial world.

But, that may change.  It certainly has in medicine.  The fee-for-service era, when every service is reimbursed – regardless of the outcome – will be entirely phased out.  Physicians, hospitals, nursing homes, rehabilitation centers will be paid if they meet designated quality benchmarks.  If these standards are exceeded, then a bonus payment may be forthcoming.  If the standard is not reached, then the provider may be coughing up a penalty. 

Beware the Hornet's Nest!


The concept is attractive in medicine and in commerce overall.  Consider these two hypothetical examples under the fee-for-service model.

A patient sees a gastroenterologist.  Although a colonoscopy is not medically necessary, the physician advises it and performs it.  There is a complication and the patient is hospitalized for 5 days.  Emergency surgery was needed to repair the complication.  All physicians, hospital consultants, the hospital and a few days of post-discharge rehab are all reimbursed.

A patient sees a gastroenterologist.  A colonoscopy is not medically necessary and is not ordered.  The patient is advised to continue Metamucil and to return in 6 months.  The physician is compensated at a mid-range level office visit level.

The absurdity in the above example is apparent.  The wrong incentives are in place.

Here’s the challenge in rewarding outcomes. 
  • What are the quality outcomes that will merit compensation?
  • Is there a fair and reproducible manner to measure the outcome?  (How would you precisely measure improvement in fatigue, depression and abdominal pain?)
  • Would physicians and hospitals be penalized if patients did not follow medical advice and had poorer outcomes?
  • Should specialty physicians who have trained longer than primary care physicians expect higher reimbursement levels?
  • How do you reward a physician who does not order unnecessary tests, consultations or prescriptions? How could you reliably measure this?
  • If a hospital receives a ‘lump sum’ fee for a patient’s care, how is this fairly divided among the hospital and the various physicians?
Let’s be truthful.  Some forces advocating for value based pricing - pay for outcome - are pursuing this strategy to save money as much or more than to enhance medical quality.  The potential conflicts of interest are self evident. 

And, there’s the risk of going too far.  If I see a patient with abdominal pain and after appropriate testing determine that diverticulitis is the culprit, I will likely prescribe medication. If the patient doesn’t respond to the proper treatment, should I have to forfeit my reimbursement?  Would this be fair?  An unwelcome outcome is not evidence of deficient medical care. 

Value Based Pricing, like many slogans, is attractive.  But, there may be a hornet’s nest lurking below.







3 comments:

Nathaniel Boëchat said...

This a very intriguing topic. It seems as if value based pricing makes sense from the business/administrative perspective in the hospital but in practice it could create serious conflicts of interest like the examples you provided. Do you know of any instances where this type of pricing has worked well on a consistent basis in the hospital setting or is it too early to say?

Michael Kirsch, M.D. said...

@Nathaniel, I think value based pricing will form the basis of medical reimbursement. Yes, there are conflicts of interests, but the prior fee-for-service model was riddled with conflicts. There will be 'winners and losers' and we can expect strong opposition from those players who will stand to lose as medical reimbursement evolves. Thx for your comment.

Nathaniel Boëchat said...

Very interesting. Thank you for your reply! I am interested to see how the pricing systems evolves in the future.

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