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Paying for value in healthcare 

First published in The Straits Times on 14 October 2013
The introduction of universal health insurance through MediShield Life is the Government’s latest move to keep healthcare affordable and to provide peace of mind to Singaporeans.

However, there is concern in some quarters that rising costs will soon place medical care out of the reach of many if nothing is done to keep costs in check. Universal coverage may ease the financial burden of a serious illness when it strikes. But there is still silence on the broader issue of long-term affordability.

If healthcare costs continue to rise uncontrollably, it will not be enough to increase medical savings or collect higher premiums when the insured person is younger. The fundamental challenge is to control costs.

Globally, there are four commonly adopted payment systems. The first is fee for service, where every individual activity is separately paid for. The second is the block grant or block budget system, which refers to a wholesale budget for a hospital. The third is episode-based payment through diagnosis-related groups. This system classifies inpatient and day surgery cases into one of hundreds of possible groupings according to the patient’s diagnosis and treatment. The final payment system is called capitated general practitioner (GP) payment. This is a fixed, risk-adjusted sum paid by a patient (or for a patient) regardless of actual use.

In all these systems, hospitals are paid for treating a patient for a given condition and not for the results achieved.

By increasing volume, hospitals can increase their income, regardless of the quality or appropriateness of the care provided. In other words, delivering high quality healthcare efficiently does not always generate higher revenues for hospitals or doctors.

In fact, there are perverse incentives for healthcare providers willing to provide only mediocre care, since doing so can bring in even more revenue. For example, medical complications such as in-hospital infections can result in longer hospital stays, thus producing more revenue for the provider.

The current payment modes reflect and perpetuate the failures of existing healthcare systems. We may be paying for disjointed, uncoordinated medical advice, when we should be receiving holistic care with an integrated outcome.

Singapore has tried the first three of the four payment systems listed above. Today it operates a hybrid model suited to its healthcare policy and needs.

There have also been early steps towards a system more focused on population health and treatment outcomes. These include the organisation and integration of services into Regional Health Systems, the opening up of MediSave for primary care of chronic diseases and the development of Chronic Disease Management Programme for General Practitioners.

Globally, policymakers and insurers are considering the benefits of a value-based contracting payment system. This is a system in which patients pay only for good, effective and agreed-upon or contracted outcomes of care, rather than for the processes that go into it.

However, it is not easy to implement such a system.

Most systems find it easier to reward process compliance. For example, doctors may focus on improving indicators which yield the most points, or which “check the boxes”. This may involve complying with various processes such as calling for a blood test to be done biannually, rather than developing ways to improve outcomes.

Doctors, insurers and patients all have differing access to and understanding of medical information. This makes it difficult to determine what sort of care is appropriate and necessary, and can lead to providers gaming the system. For instance, providers can introduce unnecessary or more expensive tests, treatments and services to get higher revenue when it comes time for reporting and claiming payment.

In fact, it would seem almost too complex to put the patients medical problem central in the payment system, given the broad scope of medical problems that patients may present with, and the challenge to define where care processes “begin” and “end”. For example, does the care for a patient who has undergone hip surgery end when he or she leaves the hospital? Or when the patient is able to walk independently?

For a contracting value system to work, I believe three building blocks must be in place.

The first is to delineate care services into “units of care”. This means paying only for integrated care services or products that lead to an effective final treatment outcome based on best available evidence, and which is agreed upon by both the patient and the doctor.

Payment could be on a per illness basis, such as treatment for an acute heart attack or a fracture. It could also be based on per year of care and continuous across primary (such as GP) and hospital care settings, for example with as in chronic diabetes care.

The second building block is to determine what and how to measure the core outcomes that patients and professionals aim to achieve. These must be both measurable and meaningful. These are easier to identify once the types of care are determined.

Take for instance, patient recovery from a heart attack. The desired measures to evaluate whether the hospital has done its job could include high rescue rate, low mortality and morbidity as measured three months after the heart attack.

In the case of frail elderly people with multiple chronic diseases, measures could be based on the quality of life, low readmission rates, and the patient’s sense of empowerment and self-management of the ailments concerned.

The third building block of a contracting value system is to contract for desired outcomes. Payment for medical services is made when contractual terms are fulfilled.

These three building blocks will allow the formation of an environment which encourages care organisations to be holistic and innovative in delivering the best possible care to their patients.

In Singapore, the development of such integrated care outcomes and indicators is already underway, although time will be needed to work out all the necessary building blocks.

The day may soon come when payment by the government or the insurer to the healthcare provider is ultimately tied to the achievement of better health of the patient and the population.

Value-based payment or payment for outcomes, may turn out to be the most important factor in ensuring that MediShield Life becomes a sustainable solution.

The writer is Dr Loke Wai Chiong, director of Global Healthcare Centre of Excellence, KPMG in Singapore.