Walmart Experiments with New Healthcare Payment Model

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“American healthcare is screwed up. It is a bizarre market where the prices that patients pay do not match the quality of care,” Shelly DuBois of CNNMoney observes, adding that there is nothing new about this assessment. The question is, why are the market prices so out of step with the quality of the provided services?

The answer may be simple according to research done by the Boston Consulting Group: “providing worse care pays off for hospitals.”

DuBois reports, “The research group published a paper in the Journal of the American Medical Association on April 16 that looked at more than 34,000 surgical patients who were discharged from 12 hospitals in 2010. Out of those patients, 1,820 suffered at least one complication from surgery. Of course, patients with complications cost more to treat — they spend more time in the hospital and require resources like nurses and beds.

“But the study found that these patients didn’t simply cost more to treat, but the majority of them generated a much larger profit for hospitals.”

In fact, she continues, “privately insured patients with surgical complications delivered almost $40,000 more in profits (per patient) than privately insured patients who had no complications. The margin was smaller for patients with Medicare — those patients who had complications earned the hospital around $1,700 more than those who didn’t have any.”

Medicaid and self-paying patients made up a dismissive 10 percent of the patient populations studied. Therefore, “90 percent of surgical discharges at these hospitals during 2010 participated in a payment system that rewarded the hospital if patients faced at least one surgical complication.”

In short, the system is designed to reward “perverse behavior,” one of the researchers said, and “at many hospitals, physicians earn money for every procedure or test performed, regardless of the outcome.”

The tide is changing, of course, and business, as well as the government, is becoming more and more interested in the logistics of quality care.

Enter Walmart.

DuBois writes, “CEOs in other industries are starting to place a premium on quality of healthcare, however. It makes sense — if employers are paying for health care, they want to pay for care at better, more efficient facilities that don’t have any incentive to charge for procedures that could be superfluous.”

Leading the pack is Walmart, which has started paying for such bundled treatments as heart, spine, and transplant surgeries, provided its employees choose one of the company’s approved healthcare organizations, such as Ohio’s Cleveland Clinic, whose doctors are employed and on salary with no financial incentive to make extra money off patients. Walmart scrutinizes each healthcare organization based on patient outcomes and low readmission rates.

DuBois concludes, “Pursuing the best interest of the patient — what an idea. Granted, Walmart’s program is a new experiment. To last, it will probably have to both provide patients better care and save Walmart money. But it is a push against the grain in an otherwise broken system. Hospitals need not profit from sicker patients. It is a simple concept but a massive management challenge: reward physicians and institutions that are the best at keeping people well.”

As healthcare executives, what is your reaction to the Walmart experiment? Do you think it will work? Do you see it as another step away from fee-for-service and toward value-based care?

-by Pete Fernbaugh

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