Crossing The Shaky Bridge To Population-Based Payment Systems

I was lucky enough to attend another healthcare conference back in early December of 2019. Imagine that, a time when conferences were still being attended in person. Fresh off my recent trip to Ecuador to mingle with other personal finance nerds, I thought I would ease into my first week back at work with a two-day mini-conference. 

It was the second day and we were scheduled to go until about noon. I was toward the end of my morning conference routine of dodging salespeople and capitalizing on free breakfast when the first speaker started his presentation. Max quickly realized we had a quality speaker on our hands. So I put my phone down, picked up my coffee, and I started listening.

Turns out this wasn’t a presentation, it was a call for action. And it got my attention.

“I Heard it at a Conference…”

Now, a little disclaimer here. Usually, when someone goes to a conference and comes back all amped up about something, I take it with a grain of salt. Do they fully understand the subject matter? Have they vetted it? Does it even apply to our organization? It’s part of the reason I went home and drafted this post and then proceeded to sit on it for ten months.

Conferences: a place where good ideas sometimes go misunderstood.

Clinical people (usually techs and nurses) often come back from conferences ready to change the world. They call my office with concerns about how we are conducting business. I usually need to talk them off the ledge.

“We should be billing for (insert clinical service here). They told me we are losing millions at a conference.” 

“We shouldn’t be doing this. They told me it is against the law at a conference.”

“Are we committing fraud? They told me we are committing fraud at a conference.”

They certainly mean well, but these things usually don’t materialize into much.

Max, on the other hand, I am usually pretty grounded. I strategically let some of the ideas from this particular talk stew before finally clicking the “publish” button on this post. Ultimately, in this case, I’m still pretty amped up about the concepts this speaker touched on.

Part of the idea behind this blog is for it to help me formalize my thoughts on personal finance, healthcare, and retirement. This could potentially impact all three.

The Message

The title of this presentation was Financial Sustainability: Creating A Revenue Strategy.

I know, it sounds quite exciting. But revenue cycle directors like me eat this stuff up.

Sustainability‘ is a pretty powerful word when we are talking about hospitals and health systems potentially closing their doors. Jobs and access to care are at stake here, so this is some pretty serious subject matter. One of the early slides showed that 118 rural hospitals had closed since 2010 and 160 had closed since 2005. Seventeen hospitals had already closed by that point in 2019.

This guy was with a consulting firm out of New England. I could immediately tell he knew what he was talking about. From his talk, I got the impression he travels all over the country doing consulting work for rural health providers. It just so happens a lot of my work over the last few years has been in rural health. Regardless, something got my attention.

I suppose the fact that he was also a Stephen Covey fan certainly didn’t hurt. I went through “7 habits” training years ago and loved the concepts. He made a few comments about abundance and getting burned by people with a scarcity mindset. I’ve been there. Watch out for those people. We come from the abundance camp here at Max Out of Pocket.  

I think what really got my attention the most was early on in the presentation he mentioned the average premium for a family in the United States had recently crossed the $20,000 mark. This was a fact I already knew because I had just written about how my 2019 premiums came in over $20,000. I even compared them to other line items in my budget. His comments validated that I am not the only one who took notice.

The focal point of this particular talk was this:

Healthcare is going through an extremely difficult transition of walking the shaky bridge from the fee-for-service payment system to a population-based payment system. It will take some significant strategy and effort to get a population-based payment system implemented, and those who don’t adapt will likely become casualties along the way.

It got me thinking, could I inadvertently become one of those casualties? 

My then future father-in-law made me cross this shaky bridge on my first trip to New Brunswick, Canada back in 2011. I believe this was near the Bay of Fundy. Not too far from the highest tides in the world.

Max is going to go out on a limb and say some of my readers have probably never heard of fee-for-service or population-based payment systems. Stay with me, though, because these things impact us. So let’s briefly define a few things. 

Fee-For-Service Payment System

The Fee-For-Service payment system is just how it sounds. The hospital or medical provider will get a predetermined fee for providing a specific service. This payment model makes the volume of services provided very important to the bottom line of the medical provider or health system they work for. Just like in traditional businesses, higher volumes help scale costs.

It is very similar to how we purchase most services today. Take an Uber driver for instance.  

The problem is healthcare is a bit more complicated than hiring an Uber driver. In healthcare, we aren’t always the ones deciding what services we are going to consume. A lot of times, we don’t even decide where we are going to get those services. In other words, someone else is often not only deciding what we are going to buy but where we are going to buy it.

This takes away the market pricing pressures we might see in other industries. This results in very little incentive for patients or medical providers to buy less or shop around. Ultimately, it inadvertently creates a conflict of interest and rewards overutilization of services. Both government and commercial payers use out-of-pocket costs to try and curb utilization, but that comes with its own set of problems.

Population-Based Payment System

A population-based payment system is a little more sophisticated. It better aligns the incentive for a medical provider to keep a patient in good health while reducing the utilization of unnecessary tests.  

Essentially, a provider entity is agreeing to accept responsibility for the health of a group of patients in exchange for a set amount of money. If the care management team performs well on quality metrics, then they will get to keep a portion of the savings generated by this model. They are essentially taking on some of the risks that traditionally live with the insurance company.  

In a population-based payment system, my care team is paid a set amount of money to take care of the “whole me”. They don’t have to order my $108 comprehensive metabolic panel for the health system to get paid. The provider entity theoretically already has their money. They can certainly order it if there is an evidence-based rationale to do so, but they don’t need to do it to generate revenue. They are also incentivized to actually poke around a bit during my annual physical, something that didn’t happen at my free preventive exam with primary care last October. Again, oversimplified, but the general concept applies. 

Population-Based Payment System: A better incentive for prevention?

The population-based payment system is where the speaker said we are going, but it was going to be a tricky balance to get there.

Walking the Shaky Bridge

Fee-for-service has a target on it’s back. Adam Boehler, the former Director at the Center for Medicare & Medicaid Innovation (CMMI) has said that on record. He has since moved on to other things, but others have followed with similar comments.

“I’ll tell you a lot of what I do in my role running CMMI as senior adviser to Secretary Azar is to blow up fee for service,” he said during a fireside chat at the Office of the National Coordinator’s annual conference. “That’s one of our prime goals—is to get rid of fee for service.

FierceHealthcare – Adam Boehler

The speaker at my conference had a slide dedicated to comments such as this one from big players in the industry. This included Seema Verma, the current administrator for the Centers for Medicare and Medicaid.

One of the points he spent some time emphasizing was that it was going to be a painful transition getting from fee-for-service to a population-based payment system. He even had a timeline mapped out in the form of a bridge.

Indiana Jones

On one slide he had a bridge representing a timeline with the years 2014 and 2026 on each side of it. Under the bridge were alligators chomping at the bit.

Picture the final bridge scene in Indiana Jones and the Temple of Doom. These alligators represented the risks involved in completing a monumental payment system transformation such as this. I have thought about emailing the speaker to ask if I could publish the slide here on the blog and formally cite him on this post. However, he is just a bit too close to my market for comfort, and I am still trying to stay anonymous at this point. I am sure he would get a kick out of it that someone dialed into his presentation so much.

The presentation went on to discuss a very specific framework for implementing population health management and a provider-based health plan. I may get into some of those details in a later post, but we are going to stay high level here.

The speaker did mention Kaiser Permanente out of California has done extremely well with the population-based model. They are leading the way both operationally and in their financial metrics. They must have Harrison Ford on their team. Perhaps I will finally be able to convince Mrs. Max OOP to move to the west coast. Then, I could join Indiana Jones in his domination of the healthcare system. For now, I am stuck in New England while she gets to hang out in Alberta, Canada with a nationalized healthcare system in her back pocket.

Primary Care Practice – A Simple Valuation

Another thing emphasized was the importance of primary care clinics in this new model. They are basically the gateway for premium dollars entering the system. The presenter compared these practices around the country to several “small businesses”. He put a value on them by doing some very simple multiplication. If a primary care practice takes care of 1,000 families, they are the gateway of almost $20,000,000 in premiums. Some large practices may have thousands of families in their provider panel. Primary care will be a key player in “managing” these premium dollars.

1000 families X $20,000 insurance premiums per family = $20,000,000

Perhaps this is some additional support for my medical office buildings being a solid long-term investment.

Time for Max to Sharpen the Saw?

Now, I have spent a lot of my own time working and providing value in the fee-for-service world. This payment model filled up health system business offices across the country with hundreds of people to take care of the clerical tasks that come along with it. This includes things like registering patients, authorizing services, posting charges, coding, filing claims/bills to the insurance company, fighting with them to get paid for the medical services provided, and finally posting the cash if they ever get paid. We also have an army of people standing by to collect on the supersized out-of-pocket costs often left to the patent after this process takes place. We called this process the revenue cycle.

Someone had to help manage these people, and Max fit the bill. No pun intended. 

I was successful at leading teams of cubicle farms while putting up some pretty material value for some health systems over the years. For the most part, I enjoyed the work. I still have a lot to offer in this arena and it will be particularly important for crafting a revenue strategy in the interim while we move the system to these modern payment models. But at the end of the day, things are going to be different.

I could almost envision a world without claims and oversized hospital business offices in this new payment model. I recall the speaker suggesting that could be where things are going. Imagine payers and providers working together to care for people instead of spending billions fighting over the dollars.

Imagine if Mrs. Max OOP and I turned over our $22,450 annual premiums from 2020 to a provider-based health plan to “manage our care”. A retainer fee, if you will. How much easier would the billing world be and how much smaller would those hospital business offices get? Patients and families would no longer have to fumble through a billing system that has become almost impossible to navigate. Dr. Medimetary mentioned in his review of the direct primary care model that this very simplicity is one of the draws to that particular model of care.

We just need to make sure we have solid quality metrics in place to make sure providers don’t skimp out too much on providing care to pad their bottom line.

The Take Home

Max still has a lot to learn here.

I have poked around some of these “value-based” models on the Medicare side over the years, particularly the payment incentives. But a lot of my work continues to be in the outdated “fee-for-service” realm.

In other words, I still work for Sears and an Amazon drone is knocking on my door.

There are obviously risks and barriers that come along with a population-based payment system. We won’t cover those today. But either way, 10 years from now the system is going to look a lot different. Big names are moving into this market at a rapid speed and will force change if the government doesn’t blow it up first. Health systems are well-positioned to implement a population-based payment system for their employees.

Fee-for-service is a broken model that needs fixing. Higher deductibles and CMS’s efforts on price transparency in 2021 will put some traditional market pressures on the industry, but it won’t be enough. Population-based payment systems are coming.

Unfortunately, right now, the general population and rural hospitals are feeling the brunt of this transition with exorbitant premiums and out-of-pocket costs. Perhaps this is one of the early steps of the transition.

My industry is in constant transition, and I will always have plenty to keep me busy. But the next several years are going to be tricky and I need to make sure I align my skill sets with the way things are going. Perhaps shifting my trajectory into population health or strategic planning would be a reasonable path at this point. I am close enough to clinical operations that there are a lot of different directions I could go. Who knows, maybe I will take it to the house and make CFO one day.


5 Responses

  1. Medimentary says:


    I enjoyed this post. Well done and thanks for addressing an important topic for those not in healthcare. There is so much to say on this topic and I’ll add a few points from my perspective. I group the idea of “population-based payment” under the larger umbrella of value-based payments (VBP) where the payer holds the delivery system accountable for quality and cost.

    As you point out, the VPB model uses pay-for-performance measures to encourage better decision making for a population. However, the vast majority of current payment systems for doctors are fee-for-service. This incentive to do more and get reimbursed drives the preference for commercial health plans (higher reimbursement) and also maintains higher earning potentials for doctors. This is a misalignment of incentives. Doing more may not be in the best interest of a patient.

    The VBP model already exists to help prevent hospital readmissions and for bundled payments for procedures like knee replacements. There will be metrics for immunizations or cancer screenings, but all of these involve patient buy-in and action (ie taking prescribed medications, doing the necessary rehab, or accepting vaccinations) in order to meet the metric. It’s a balancing act.

    Kaiser has a capitation model where premiums are pooled and the organization determines the best way to take care of the population of members. For full disclosure, I am a former Kaiser physician and speak highly of the organization. There is an incentive for high quality and cost-effective care. As the insurer and provider of healthcare, Kaiser is both vertically and horizontally integrated and the incentives align. High quality and cost-effective health plans also sell well to employers and to individuals on health care exchanges.

    Lastly, thanks for the mention in your post. The complexity and frustration of billing have persuaded some providers to establish Direct Primary Care practices. They are lean, small businesses with transparent pricing and no third-party payers. They can be a great fit for some doctors and patients.

    Keep up the great work.

    • Max OOP says:

      Thanks for the kind words Dr. Medimentary, and for adding your thoughts.

      I don’t usually broach broad “macro” concepts like this one. It does seem that someone could dedicate an entire blog to this topic. Grouping this under the umbrella of the value-based purchasing concept makes a lot of sense. I have actually modeled those readmission payment adjustments before. There are some real dollars at stake there.

      The fee-for-service model does drive a preference for commercial plans so the organization can help cross-subsidize the system with higher reimbursement rates. It is really archaic if you ask me.

      I didn’t realize you did work for Kaiser. That’s must be a great perspective. This speaker spoke highly of them as well. I am sure patient buy-in is huge for making it work, and there are certainly patients who lack the motivation or understanding that could hinder the performance of the model.

      Have a good weekend.


  2. David says:

    Thanks for the post. I’d never heard of population-based payment systems as an alternative to fee-based systems. I’m all for whatever can curb the crazy, escalating medical costs.

    Also, the Bay of Fundy is so cool. We visited there in the fall of 2018 and loved every bit of it. Fond memories of getting very muddy, walking on the mud flats of the bay during low tide.

    • Max OOP says:

      Yes, it is really cool. My mother in law lives really close to there, and we often take day trips when we visit New Brunswick. And yes, don’t wear your white shoes as my wife did. Did you hit up Hopewell rocks?

      Thanks for taking the time to read this, I would love for more people not in the industry to understand some of these options.


      • David says:

        Yes, it was at Hopewell Rocks. We were driving back down through the Northeast after vacationing on Prince Edward Island. I highly recommend the stop for anyone passing through.

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