Academic journal article Frontiers of Health Services Management

Purchaser-Driven Reform: Who Is at the Wheel?

Academic journal article Frontiers of Health Services Management

Purchaser-Driven Reform: Who Is at the Wheel?

Article excerpt

Robert E. Hurley's article accomplishes several major objectives in that it prompts one to think past this year and the next about changes that are occurring in our health care system. More important, it makes the point of the inexorable nature of those changes aside from what may occur nationally or locally in terms of legislation. Two of the basic tenets of his article are not predictions at all but are observations regarding processes that are extant and growing in intensity. The prediction is simply that these existing trends will continue to intensify and will be the primary drivers of change in the system.

The first point is that purchaser incentives rather than provider-driven incentives are becoming the engine for change and the architect of that change. In this regard, purchasers are demanding value, which simply means the maximization of quality with the minimization of cost. Cost is being defined, perhaps for the first time, as what the purchaser is willing to pay rather than the charge of the provider. Outcomes measurement and the supporting data therefrom are being demanded as the assessment of quality is becoming objective rather than the somewhat loose subjective assessments of the past.

The second major change that Hurley describes is the gradual shift of financial risk from the "insurer" to the provider. There are many examples of this shift of risk. Insurers nationally are seeking to capitate individual physicians and groups of physicians for care of enrolled populations, both in the case of primary care providers as well as specialists. These same insurers are seeking to pass risk to the providers by developing comprehensive service contracts that include physician and hospital fees for particular episodes of care, usually in the tertiary venue in areas such as transplantation and open heart surgery. It is evident that if this trend continues and more and more risk is placed on the shoulders of the providers, gradually the providers become the insurance mechanism and today's "insurance" companies will become jobbers of care, serving as distributors for the purchaser but minimizing their own risk and providing none of the services directly. As the "pushing down" of risk continues, those providers (both physicians and hospitals) who do not want to be in the insurance business will have to decline such capitated arrangements (and/or participation in bundled service pricing) and will lose access to the part of the market seeking such arrangements. As that part of the market grows, providers will have no choice in the matter. It is interesting that in almost all scenarios for reform, capitation emerges as the ultimate order of the day.

Hurley describes three evolving structures for insuring and delivering care. The first is the provider-sponsored vertically integrated system in which a single provider develops the capacity to provide in-and outpatient services, physician services, and managed care programs. Such a provider system ultimately becomes an insurer when it takes upon itself all of the financial risk for the care of those individuals enrolled with the system. At the other end of the spectrum is a second model in which a "selective contracting organization," which provides no direct care on its own, contracts in the "spot market" for all of the required services, buying each service from the most economical provider in the market and thus creating a network from the sum of all of these individual contracts with providers. This network/selective contracting model can move quickly to change providers by termination of contracts and puts intense pressure on the provider market to be cost effective. This kind of network can be put together quickly and can be very flexible in that changes can be made rapidly. It does not enjoy benefits of long-term relationships between participants. The third model has features of both the first and the second. It too is a network/contracting model, which Hurley designates as the "bilateral compact model. …

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