We caught up recently with a banker friend – a veteran of the healthcare industry – to ask him for his thoughts on the state of the sector today:

“You’ve touched on a key trend in your series,” he told us: “the transition from fee-for-service to fee-for-value. Providers used to be reimbursed for costs incurred in delivering care, plus a profit margin. But expenses rose because providers weren’t incentivized to control them. Today each procedure or unit of care delivery has a pre-defined reimbursement level. That’s helped curb excesses of the “cost-plus” era.”

He went on. “But we continued to see double-digit growth in healthcare expenditures through the 2000’s. By 2010, Baby Boomers started to retire just as the ACA was enacted. That pressured the system to deliver care more effectively and efficiently. The emerging paradigm is “fee for value”, where reimbursement is about quality of outcomes, not just volume. While initially more of an ideal than a reimbursement method, it’s animating industry constituents to evolve and become a reality”

How exactly? “Besides designing reimbursement to reward providers for outcomes, payers are looking to partner or merge with providers. Providers are then trying to improve outcomes with better monitoring and metrics. In general, the system is thinking how to manage healthcare delivery for entire populations, not just individuals.”