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Fixing a Broken Model

Imagine going to your mechanic with a burned-out headlight. It should be a clear-cut replacement. Instead, the mechanic reprograms your engine control unit, realigns your suspension and flushes all your fluids. It takes the whole afternoon and costs many times over what you’d budgeted. And when you pull out of the parking lot and flip on your lights, still only one is working.

This isn’t a perfect analogy for the current state of health care, but it gives an idea of the misalignment between the cost and value of medical services in the United States. In an earlier post, I wrote about the fee-for-service model of health care, in which doctors are rewarded for providing more services, including tests and office visits—regardless of whether the additional care makes a difference in patient health or satisfaction.

The fee-for-service model has had a good run. Before the modern era of medicine, physicians typically only treated acute problems using straightforward surgeries and a basic array of relatively inexpensive medications.

In that context, the fee-for-service design gave patients easy access to affordable medical care, and it rewarded doctors appropriately for setting a broken bone or prescribing penicillin for bacterial pneumonia.

Over the past 30 years, however, patients are more often being diagnosed with chronic diseases, not just for episodic health problems, and treatments have gotten increasingly more complex—and much more expensive. Meanwhile, the reimbursement system has not evolved with the times. To stay afloat financially, doctors need to perform exceedingly complex procedures or prescribe expensive drug regimens, even if they yield marginal benefit—or no benefit—for patients.

It’s a lose-lose situation, and it’s unsustainable. While it’s a tough model to dismantle, we finally are seeing keen interest in finding a better way to provide and reimburse for health care. There is an accelerated push to move from traditional fee-for-service reimbursement to value-based health care, which links payment to outcomes (improved health, higher satisfaction, lower costs), rather than to the services provided.

Another option being considered is bundled payments, in which providers are paid for “bundles” of care rather than individual services to promote more cost-effective use of resources. Treatment for diabetes, for example, would also integrate care for conditions such as hypertension, renal disease, retinal disease and vascular disease—all of which are common and concerning comorbidities.

Convincing physicians to change how they practice isn’t easy, but with the continued uncertainty the health care industry will face in 2018, practitioners and organizations will be motivated to assume more accountability for the cost, quality and efficiency of their services.

I predict health care will accelerate its shift toward a value-based model as the industry struggles to address challenges associated with rising cost burdens, inefficiencies and patient dissatisfaction. Aligning reimbursement with value will reward physicians for being efficient and providing treatments that achieve good outcomes for patients. The converse will be true, too, and the number of substandard care providers will shrink.

Additionally, if value improves, patients, physicians, insurers and medical suppliers all can benefit from the health industry’s increased economic sustainability.


Dinesh Ganesan

Vice President and Chief Financial Officer Dinesh Ganesan is a vice president and the chief financial officer for Johns Hopkins Medicine International. He provides leadership in financial planning, budgets and projections; management of assets and operating cash flows; and the financial operations of new and existing affiliates, projects and business development opportunities. Click here to learn more about Dinesh.

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