Blog 6: Future-proof funding of care

Align reimbursement with meaningful healthcare principles

By: Sander Visser, Marcel Otten  |  Published: December 5, 2018

To ensure the success of the long-term transition to appropriate care, financial incentives are necessary. The funding model must evolve along with the care institution. The question is which funding system will reward appropriate care in the long term, and how can we configure that system so that all of the care institution’s employees receive the right rewards for providing appropriate care? There are no easy answers.

Future-proof funding of care

Long-term solutions for contracting care institutions

In blog 2, we discussed long-term alliances between healthcare insurers and care institutions based on a non-production-driven, fixed amount in revenue. This eliminates volume-driven incentives and gives the care institution scope to work on appropriate care initiatives. In addition, it offers the alliance partners more time to build mutual trust and understanding. This solution will work for a few years but it is not viable in the longer term, for two reasons. On the one hand, any actual cost reductions will accrue entirely to the care institution, and not to the healthcare insurer and contributor; on the other hand, maintaining fixed amounts in revenue over a longer period will make waiting lists and a lack of innovation more likely. That is why Strategy& is working with healthcare insurers and care institutions to develop a new funding model that distributes the costs and benefits more fairly and mitigates the aforementioned risks.

The starting point is to use quantifiable incentives that encourage appropriate care. Examples include the number of appropriate care initiatives, or the frequency with which decision aids are used when surgery is indicated. In the medium term, a number of new elements will need to be added to the fixed amount in revenue, such as the production and cost reductions actually achieved and the avoidance of waiting lists or patient outflows to other regions. In the longer term, the incentives will need to be applied to the four care models described in the previous blog (5). For Acute Care, that could consist of a fixed amount; for Diagnosis and Needs Assessment, an hourly or consultation fee; for Intervention Care, a fee for each intervention combined with a production ceiling; and for Chronic Care, perhaps a subscription fee in which there is a combined payment for primary and secondary care based on the number and type of chronic patients in a specific catchment area (population-based funding). This method of funding could also be combined with the different quality indicators across the four care models, for example the degree of patient involvement in decision-making or the outcomes and complications of interventions.

Everyone in the care institution must be rewarded in line with the appropriate care philosophy – including medical specialists

To make the transition successful, appropriate care must be a top priority for everyone at the care institution – otherwise, it is doomed to failure. The financial arrangements that care institutions make with healthcare insurers must therefore also encompass medical specialists, whether they are on the payroll or organised into specialist firms. Approximately 90% of the time, medical specialist firms use the LOGEX distribution model, in which budgets are distributed across specialist groups or individual specialists based on production and efficiency levels. In other words, the more productive and efficient the groups or individual specialists are compared to the benchmark, the larger their share of the pie. However, this volume-driven incentive is precisely the opposite of the appropriate care movement.

That is why LOGEX, in cooperation with medical specialist firms and with the support of Strategy&, has developed an amended distribution model within the appropriate care context. The model uses the right methods to encourage medical specialists to redirect their efforts towards appropriate care.

The underlying principles for the new distribution model are: rewards for performance, no incentives for (over) production, no ‘penalty’ for providing appropriate care, integration of internal and external incentives, and clarity in advance.

Koen Luijkx, LOGEX

‘We worked extensively with all the relevant parties to map out the current situation and where we wanted to be. We then looked at how to design a new distribution model within the context of appropriate care.’

In addition to the appropriate care distribution model, care institutions and medical specialist firms are facing a number of other decisions. First of all, they must decide how quickly they should downsize their capacity. Second, care institutions must indicate whether they require (partial) revenue guarantees, for example in the form of a transition allowance paid in advance. That way, medical specialists will not be disadvantaged if appropriate care initiatives lead to lower production figures than originally budgeted. A shared savings scheme can also help to encourage cost reductions because the (off-budget) savings are shared between the hospital and the medical specialist firms in the subsequent year.

Which decisions are taken and how much leeway there is will depend on the own culture, financial situation and external agreements. Strategy& and LOGEX can offer advice and support in decision-making and implementation.

Koen Luijkx, LOGEX

‘This project is truly being co-created with doctors in hospitals who are keen to implement appropriate care. They contributed the care-related substance, we supported the calculations, and Strategy& acted as project coordinator.’

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