Out-the-box solutions ahead to curb rising healthcare costs

Alternative payment methods

There’s an urgent need to rethink payment models in healthcare, medical economists have argued – and the potential benefits are enormous in under-resourced markets such as South Africa.

There’s a growing need to introduce alternative payment models into South Africa’s medical landscape, say medical economists – and some innovative solutions are on the horizon.

The trend is moving away from a fee-for-service model, where healthcare providers are paid for each service they provide. Rather, providers will be incentivised to achieve better health outcomes for patients – either by preventing illness or by treating it as quickly and cost-effectively as possible.

More effective (and cost-effective) treatment models will be essential when South Africa transitions to a National Health Insurance plan, believes Dr Ernst Marais, Chief Operating Officer of ISIMO Health, an organistion that liaises between patients, doctors and funders to find the most appropriate and cost-effective treatment protocols in South African healthcare. The total public funding for healthcare in 2012/13 was R21 billion, while the NHI scheme was expected, during the same period, to require expenditure of about R336 billion. Meanwhile, healthcare costs are rising. It’s essential, therefore, to make medical funds go further.

“A key problem in healthcare at the moment is that we work in a fee-for-service environment,” explains Dr Marais. “This means that healthcare professionals get paid according to how many procedures, tests, investigations etc. they do.” This is not to say that healthcare providers’ work should not be valued, he says. But ideally, there should be a financial incentive to provide the best possible outcome or to focus on preventative treatments.

Some medical aids are already following this trend, with loyalty programmes that incentivise members to exercise, eat healthy foods or have regular health screenings. But, says Dr Marais, global trends also favour a more progressive route when it comes to treating patients.

In the United States, two major schools of thought have emerged: Capitation and Bundled Payments. These are debated in the August 2016 edition of Harvard Business Review (HBR) (How to Pay for Healthcare Porter M, Kaplan R, HBR July August 2016 and The Case for Capitation James B, Paulson G HBR July August 2016).

The former model developed in the 1990s as so called Health Maintenance Organisations  (HMOs); clinic-type services which were run and owned by insurers and generally operated on a fixed monthly fee per insured member. HMOs have since lost support as insurance companies both owned the clinics and the managed care process. Doctors were still paid a fee for service, but outcomes were not measured and insurance companies were accused of cutting corners to save money. Today, says Dr Marais, there is a move towards adjusting this model.

“It is called Care Delivery Groups and these are owned by healthcare providers. In this adjusted model, there is a strong focus on quality outcomes and any savings achieved due to better clinical processes and outcomes, are shared by the healthcare providers.”

The second model, discussed in the HBR, focuses on bundled payments for the entire cycle of care. An example would be a procedure like a hip replacement, where a fee is paid for the whole episode of care, from diagnosis to rehabilitation. Every provider in the care cycle is incentivised to eliminate waste and to improve outcomes. For hip surgery this will include the surgeon, anaesthetist, physiotherapist, hospital, prosthesis etc.

“It can also be applied to chronic conditions,” explains Dr Marais. “Here you would look at covering healthcare services provided over a specific time period. Whether you bundle specific procedures or you bundle chronic conditions, the focus remains on quality and efficiency or better stated – outcomes that matter to patients.”

“We need a better way to pay for healthcare – one that rewards providers for delivering superior value to patients,” wrote Robert S. Kaplan and Michael E. Porter, proponents of the bundled payment system, in the HBR. The bundled payment system means everyone will be paid for, profits will be shared, good outcomes are aimed for, and certain catastrophic events are hopefully excluded.

“Value is a term that is very much bandied about in healthcare,” Dr Marais says. “In the end this means we look for better outcomes for the same cost or at a lower cost.”

Spending more on healthcare services doesn’t necessarily lead to healthier patients, he points out. Research has shown that initially, there is an exponential increase in better patient outcomes with greater expenditure, but eventually this plateaus.

“In South Africa, whether we move towards a capitation or bundled model – and we are exploring both avenues – we must move away from the fee-for-service system,” says Dr Marais. “In certain circumstances, both make sense, and medical schemes are very interested in doing this rather than continuing with a system that rewards provider-driven demand.

“The principle is not that anyone should get paid less for their services. Doctors are highly qualified people; they deserve to be paid a fair price. But we can get rid of so much wasted cost, and doctors can benefit from that too.

“But the biggest winners will be patients.”

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