The door to significant new opportunities for both hospitals and physicians is beginning to open as value-based care and pay-for-performance models replace traditional fee-for-service billing

Under traditional fee-for-service plans, healthcare providers are paid for every test, payment or procedure they perform.  This results in volume-driven healthcare.  More patients translate directly into more testing, more services, more procedures and – ultimately – more revenue. This volumetric approach to healthcare delivery concerns government regulators and benefit companies as much as it ought to concern patients and medical professionals.

Little surprise then that regulators and benefit companies favor value-based care and pay-for-performance models that reimburse providers based on patient outcome and satisfaction, readmission rates and other performance metrics.  By 2016 half of all Medicare payments will be linked to quality or value metrics through alternative payment models – such as bundled payments plans where providers receive a single amount for all patient services.

Private insurance companies are also jumping on the alternative payment bandwagon. A national research study conducted by ORC International suggests that fee-for-service payments will decrease from their current rate – 56 percent of all private payer reimbursements – to less than 33 percent by 2019.

The paradigm shift toward fee-for-service pricing is forcing providers to employ new lenses for examining medical costs.  Tracking personnel, equipment, and facilities as well as the overhead and support costs is necessary to calculate the cost-of-service for patient care.  Today’s general charge systems are simply not detailed enough to track and manage these costs.  In order to understand true cost-of-service hospitals and physicians need to adopt new tools such as Time-Driven Activity Based Costing (TDABC).

Once actual medical delivery costs have been determined through tools such as TDABC, hospitals and physicians are free to compare, and reconcile, costs to outcomes—a critical step on their journey toward delivering true value-based patient care.


Call or click today to find out how KEUI’s experts can use Time Driven Activity Based Costing and other value-based tools to help you face these and other challenges in 2016 and beyond