What Biden’s health plan needs in order to foster innovation

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Dec 8, 2020

Now that the election is over, the spotlight is shifting from “who will win” to “what policies will the winner enact.” As always—but even more so amid a pandemic—healthcare is on the nation’s mind.

A cornerstone of Biden’s plan is creating a public option for insurance. Billed as Medicare “for all who want it,” the presumed President-elect proposes a government-funded insurance option aimed at lowering costs for beneficiaires and providing relief for small businesses.

Expanding health coverage is an important step for improving health outcomes since it increases the odds that patients can access necessary preventative care. However, expanding coverage will do little to improve our healthcare system if we do not also change how healthcare is paid for in the first place. In the end, it’s less important who pays for healthcare and more important what those payments look like. 

 

In the United States, healthcare reimbursement operates primarily under a fee-for-service (FFS) model, meaning providers earn payment for each service they perform. While its longevity in healthcare is itself an advantage since payers and providers alike understand it, the payment model drives up costs and often reduces the quality of care. If the Biden administration wants to revolutionize the healthcare system as a whole, it will need to emphasize alternative payment models. Only then can the healthcare system pursue and foster innovations that are critical to lowering costs and improving outcomes. 

The FFS challenge

Because FFS is a volume-based payment model, providers are incentivized to line up as many appointments in a day as possible, to keep clinics and hospitals filled to the brim. Unfortunately, this structure can sometimes result in the provision of medically unnecessary or repetitive care.

The complicated way insurance companies calculate reimbursement means that some procedures are more profitable than others. Typically, advanced medical procedures get reimbursed at a higher rate, while preventative medicine and well-care visits go undercompensated. Regrettably, this provides a reason for providers to offer patients costly procedures rather than interventions that could reduce the need for care down the road. The model also fails to account for the quality or value of care provided and keeps care fragmented among specialists. Under this model, it doesn’t matter if the care is necessary, high-quality, or provides value to either the patient or the health system; it just matters that care is provided. 

Opening the door to innovation

Biden’s plan emphasizes the “testing and deployment of innovative solutions” to improve care quality, which  are essential—particularly in healthcare deserts with few, or no, healthcare options. After all, expanding coverage does nothing if there are no locales to receive care, especially non-emergency care. One way innovative delivery models are solving for this is by shifting away from offering everything under one roof. 

Unfortunately FFS reimbursement doesn’t foster innovative solutions. In fact, it actively disincentivizes them. CPT codes are the most common reimbursement tool amongst providers and insurers. Physicians use these codes to tell insurance companies what procedures have been performed on a patient. The American Medical Association administers thousands of CPT codes. But it’s costly and confusing to establish a new CPT code, notwithstanding the low probability of even getting one approved. For this reason, innovations with great potential often find themselves shoved into existing CPT categories, rather than getting their own unique code. This pits new, potentially lower-cost offerings against what’s historically worked without any motivation to try the new option. 

With no motive to test new, innovative solutions—particularly those that may result in less money being reimbursed to the provider—such innovations fall to the wayside. Even the most promising innovations can go ignored under this model, because they are shoved into a system stifling their progress.      

Shifting to value-based care

Biden’s plan will, hopefully, provide the benefit of health insurance to millions of Americans. But if he truly wishes to go farther in reinventing our healthcare system, he will need to move away from FFS and towards alternative payment models that encourage improved care quality and lower costs. 

In many alternative models, physicians earn rewards for providing cost-effective care that improves patient quality, and face financial penalties for over-providing costly services. These payment models not only help decrease healthcare spending and improve patient outcomes, but also create an environment that promotes healthcare innovation. (It’s worth noting that alternative payment models also use CPT codes to identify reimbursable services, but their system of risks and rewards encourages providers  to seek out cost-saving and quality-improving innovations.) 

Changing who pays for healthcare is not enough to solve all of healthcare’s problems. It doesn’t matter much who pays for healthcare; instead, how healthcare’s reimbursement model will create the largest impact on care costs. 

For more, see:
What is value-based care, and what does it mean for healthcare?
In the wake of a global pandemic, healthcare coverage ≠ access to care

Jessica is a research associate at the Clayton Christensen Institute for Disruptive Innovation, where she focuses on business model innovation in healthcare, including new approaches to population health management and person-centered care delivery.