Distorted Payment System Undermines Business Case for Health Quality and Efficiency Gains

Publication Date: July 2007

Publisher: Center for Studying Health System Change

Author(s): Paul B. Ginsburg; Hoangmai H. Pham; Kelly L. McKenzie

Research Area: Health

Type: Brief


Efforts to improve the efficiency and quality of health care are unlikely to be successful if physicians and hospitals incur steep financial losses from success in accomplishing these goals, according to a new study by the Center for Studying Health System Change (HSC). Currently, most efforts to improve efficiency for a specific medical condition usually reduce the number of services per patient that can be billed, posing financial challenges for providers. These challenges are often magnified by the current fee-for-service payment structure, where some services are highly profitable and others are unprofitable, further undermining the case for redesigning care delivery to improve quality and efficiency. These dynamics are seen in the collaboration between Virginia Mason Medical Center (VMMC) and Aetna in Seattle to improve care for four common conditions. Although Aetna and participating self-insured employers have agreed to pay higher rates for certain unprofitable services if reductions in use of profitable services are achieved, VMMC still faces a financial challenge from applying more efficient care practices to patients covered by other insurers.