Transition to global payments could mean big changes for hospitals

Capitation (a flat, per-patient fee) is no longer the hot payment model it was in the 1980s and '90s. However, the spiraling costs and quality problems associated with fee-for-service models have sparked renewed interest in developing the next evolution of capitation, i.e., global payments. Cost reductions of 20 to 30 percent, as well as better quality of care, could be achieved with the widespread implementation of global payment models--but these successes would be tied to major changes in how hospitals operate, according to a survey of healthcare leaders in The Potential of Global Payment: Insights from the Field, a new report by Ann Robinow, president of Robinow Health Care Consulting, for the Commonwealth Fund.

Under global payment, "provider payment based on total cost of care should be coupled with payment structures that recognize the outcomes of care, ideally based on functional outcomes rather than processes of care or intermediate outcomes," says Robinow. This type of model would shift the emphasis of the delivery system and promote the use of comparative clinical effectiveness data as a tool to support clinical decision-making. Global payment models should focus on aligning incentives and innovating to improve cost and quality, but they also need to be flexible enough to give multiple provider types and sizes the ability to participate, she adds.

Hospitals will have to undergo major transformation to succeed under global payment models. "Current hospital incentives encourage increased admissions for high-margin conditions, but much of the cost savings under global payment comes from avoidance of admissions. Under global payment, services that were profit centers instantly become cost centers," says Robinow. Experts anticipate needed hospital capacity could drop by as much as 30 percent once global systems are widely adopted.

To learn more about how global payments could work:
- read the Commonwealth Fund report

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