What is Value Based Reimbursement?

Update 6/28/18: Success! Value Based Reimbursement is coming to North Carolina! 

Update 6/26/18: Value-Based Reimbursement in North Carolina is in danger. To learn more about the latest development updates, click here.

You may be hearing a neat idea floating around that could seriously lower healthcare costs.  It’s often called Value Based Reimbursement, but sometimes you’ll hear “Payer/Provider Risk Sharing,” or “Pay for Performance.” 

Whatever the name, the idea is to incentivize quality in healthcare over quantity.  And, of course, by reducing quantity, we will save money. 

 

That makes sense.  What are we doing now?

Most healthcare is currently paid according to a “Fee-For-Service” model.  This means that healthcare providers are paid, usually by a health insurer (or “payer”) for every visit, every test, and every procedure that they do. 

There’s some logic to this.  Everything a provider does has a cost to them for which they need to be somehow reimbursed, plus make a little profit.  The problem is that this system provides a financial incentive for a provider to schedule more visits, tests etc... than may be absolutely necessary.

That drives up costs for all of us because it is ultimately paid by patients and insurance premiums.

To be clear, most providers are not trying to hoodwink the system unethically to squeeze more money out their patients and insurers.  However, when deciding a treatment path, there is currently no incentive to consider the cost.  This can result in over-treatment or more tests than are needed.

 


More

Value Based Reimbursement – How Much Money Could North Carolina Save

Value Based Reimbursement Lets Doctors be Doctors

 


I think I get it, do you have a delicious metaphor?

Imagine you are at North Carolina’s own Bojangles (founded in Charlotte in 1977!).  You buy a chicken sandwich for a dollar. Now, imagine you know nothing about their sauces. When choosing health care, you turn to the expert, your doctor.  In this case, you turn to your Bojangles server and ask for something tangy and creamy.  Bojangles offers four delicious sauces.  BBQ, Ranch, Honey Mustard and Bo’s Special Sauce.

Bojangles Sauces

The server knows that in all likelihood, really just need  Bo’s Special Sauce.  But you are paying in a Fee-For-Sauce model and each sauce costs an additional dollar.

Your Bojangles server, who wants to make sure you get something delicious, would definitely offer you Bo’s Special Sauce. But they might also recommend getting BBQ and Ranch as well, just to make extra sure you get what you want. 

So now you’ve spent $1 for the sandwich, plus $3 for sauces, two of which were probably unnecessary.  That’s $4 for your whole sandwich.


Join the fight against rising health care prices today!


$3 for sauces? I just want something that tastes good!

Right! And that’s the idea of Value Based Reimbursement.  Imagine, instead, a world in which Bojangles simply sells you a sandwich for a flat fee, say $2.50, but the sauces have no additional cost to you.  In this case, Bojangles still wants you to be happy, but every sauce they provide, costs THEM some money.  The more sauces they give you, the more money they spend without getting paid back.                                                                   

So, they still want to make sure you are completely satisfied, but they are incentivized to make sure you only consume the sauce you need.   In this case, the server would recommend just the Bo’s Special Sauce. This saves Bojangles the cost of providing the unnecessary, but delicious, extra sauces. 

Won’t Bojangles lose money?

Not necessarily.

Let’s pretend the sandwich costs Bojangles $0.50 to make, and each sauce costs them $0.50 to produce. 

 

Fee-For-Service-Sauce

Value Based Reimbursement

Revenue

 

 

Sandwich

$1.00

$2.50

Bo’s Special Sauce

$1.00

$0.00

Ranch Sauce

$1.00

$0.00

BBQ Sauce

$1.00

$0.00

TOTAL REVENUE

$4.00

$2.50

Costs

 

 

Sandwich

$0.50

$0.50

Bo’s Special Sauce

$0.50

$0.50

Ranch Sauce

$0.50

$0.00

BBQ Sauce

$0.50

$0.00

TOTAL COSTS

$2.50

$1.00

Bojangles Profit

$1.50

$1.50

Look at that! Bojangles can make the same profit selling less unnecessary sauces.  Meanwhile the consumer is spending a full $1.50 less on their sandwich, and still walks away totally satisfied. That’s a 37.5% savings!

In fact, Bojangles could raise the price to $2.75 per sandwich, make an additional $0.25 profit, and the consumer would still come out ahead.

 


Join the fight against rising health care prices today!


It can be the same with healthcare.  In a fee-for-service model, all of the costs of additional healthcare services (sauces) are charged to the insurer, patient, and ultimately insurance members who pay their premiums. 

In the Value Base Reimbursement model, the insurer and patient pay the provider a set amount, and it is up to the provider to use that money efficiently to make sure the patient receives the services they need, but no more. 

Believe it or not, Value Based Reimbursement is currently not allowed in North Carolina, but it may be soon.  Sign up for updates on  this important issue and help us lead the charge!

Update 6/28/18: Success! Value Based Reimbursement is coming to North Carolina! 

Update 6/26/18: Value-Based Reimbursement in North Carolina is in danger. To learn more about the latest development updates, click here.

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