Traditionally, U.S. health care has operated under a fee-for-service payment model, in which health care providers (such as physicians, hospitals, and health care systems) receive a fee for services such as office visits, hospital stays, procedures, and tests. However, reimbursement discussions are increasingly moving from fee-for-service to value-based, in which payments are tied to managing population health and total cost of care.
Dr. Marina Farah
Because these changes will impact the entire system all the way down to individual providers, in the upcoming Population Management article series in The Hospitalist, we will discuss the nuances and implications that physicians, executives, and hospitals should be aware of. In this first article, we will examine the impetus for the shift toward population management and introduce common terminology to lay the foundation for the future content.
The traditional model: Fee for service
Under the traditional fee-for-service payment system, health care providers are paid per unit of service. For example, hospitals receive diagnosis-related group (DRG) payments for inpatient stays, and physicians are paid per patient visit. The more services that hospitals or physicians provide, the more money both get paid, without financial consequences for quality outcomes or total cost of care. Total cost of care includes clinic visits, outpatient procedures and tests, hospital and ED visits, home health, skilled nursing facilities, durable medical equipment, and sometimes drugs during an episode of care (for example, a hospital stay plus 90 days after discharge) or over a period of time (for example, a month or a year).
As a result of the fee-for-service payment system, the United States spends more money on health care than other wealthy countries, yet it lags behind other countries on many quality measures, such as disease burden, overall mortality, premature death, and preventable death.1,2
In 2007, the Institute for Healthcare Improvement (IHI) developed the Triple Aim framework that focused on the following:
- Improving the patient experience of care (including quality and satisfaction).
- Improving the health of populations.
- Reducing per capita cost of care.
Both public payers like Medicare and Medicaid, as well as private payers, embraced the Triple Aim to reform how health care is delivered and paid for. As such, health care delivery focus and financial incentives are shifting from managing discrete patient encounters for acute illness to managing population health and total cost of care.
A new approach: Population management
Before diving into population management, it is important to first understand the terms “population” and “population health.” A population can be defined geographically or may include employees of an organization, members of a health plan, or patients receiving care from a specific physician group or health care system. David A. Kindig, MD, PhD, professor emeritus of population health sciences at the University of Wisconsin–Madison, defined population health as “the health outcomes of a group of individuals, including the distribution of such outcomes within the group.”3 Dr. Kindig noted that population health outcomes have many determinants, such as the following:4
