The Effect of Payment Methods on Strategic Management

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Please see attached response (also presented below), including one relevant article as well. I hope this helps and take care.

RESPONSE:

1. What is the impact of various payment methodologies and structures on strategic management?

The Impact of Payment Methodology on Strategic Management - Payment methodologies and policies are a critical determinant of the success of any health care system. They strongly influence the decisions made and the delivery of care by health care organizations and professionals and the selection and utilization of services by patients. For example, under a fee-for-service system, there is an incentive to overuse services that are not necessary or may harm a patient. On the other hand, under a capitated system, there is an incentive to under use necessary services. Other reimbursement strategies and methodologies (e.g., diagnostic related groups (DRGs), risk adjustment, carve-outs, tax policies, physician reimbursement) also can affect the cost and quality of care by IMPACTING THE DECISIONS MADE THROUGH POLICY AND MANAGEMENT.

In addition, and as suggested in the IOM's "Crossing the Quality Chasm" report, current payment mechanisms often create obstacles to the goal of achieving efficient, high quality care. Payment methods often do not adequately support or compensate health care professionals for providing high quality care, or reward providers for quality mprovements. Financial barriers embedded in payment policies "reinforce fragmentation by paying separately according to the setting of care and provider type, and by not giving providers the flexibility to customize care for individual patients" (IOM, 2001). While there has been a great deal of research on the incentives of payment methods with respect to cost and utilization, there has been comparatively little on how payment methods and incentives affect quality of care from the perspective of the provider, patient or family. The IOM's report, "Crossing the Quality Chasm," specifically suggests that "private and public purchasers should examine their current payment methods to remove barriers that currently impede quality improvement, and to build in stronger incentives for quality enhancements."

Private and Public Initiatives

In any health care system, those who pay for care have a major impact on the cost, quality and equity of that care. In the U.S. market-driven system, the major payers are private employers and public purchasers. In 1999, 84.2
percent of all Americans in the civilian noninstitutionalized population had some type of private or public health insurance coverage. About 68.1 percent of Americans obtained health insurance from private sources. Another 16.1 percent had only public sources of coverage, primarily Medicare and Medicaid. (The remaining 15.8 percent of Americans, 42.8 million people, were uninsured (Rhoades and Chu, 2000).)

The future behavior of these public and private purchasers will be a major determinant of our capacity to close the "chasm" identified by the IOM, to maximize quality and equity, and minimize waste ...