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Instead, they'll have to design complicated contractual structures that will ensure the hospital doesn't get stuck "eating" the cost of a patient's rehospitalization if, in fact, it's the fault of the rehab provider, for example.

Trevor Fetter, president and CEO of Dallas-based Tenet Healthcare Corp., is still just in the hospital business—the few exceptions being its owned freestanding imaging and surgery centers. "In our markets, I would seek a strategy where we would try to contract with preferred providers in each one of those disciplines where we would be assured quality and coordination would be good and would fit in a price with the bundled payment," he says.

But without further clarity from the government on how bundled payments might be administered, he's reluctant to go any further at this point. As ideas go, he says, "forcing greater degrees of coordination between the various participants in healthcare is a good one."

Under bundling, Tenet would presumably get a bigger payment for the continuum of care, but would be ultimately responsible for more of the course of treatment. However, antitrust issues for such alliances are yet to be worked out.

"Say you're a patient, and the next step is you need a subacute hospital or nursing home. Today, we would work with you and your family to discharge you to a place that might be more convenient for family members, for example. So what happens when we tell you we're discharging you to a different one because we own it or because we cut a good deal with them and we have this bundled payment? That's probably a great economic outcome and probably a good care outcome, but you as the patient might say, 'It's completely contrary to everything I've seen before, and my doctor tells me where to go, not you.'"

Still, Fetter is spending much of his team's strategic planning on a part of healthcare reform he thinks might take on greater importance: comparative effectiveness.

"By virtue of having invested hundreds of millions in programs and technologies to improve clinical quality, I'm glad we did that and started five years ago because we are well-positioned now," he says. "If the government is going to pay a different amount based on performance on core measures or not contract with hospitals that do poorly on them, I would say fine, we're performing well, we'll take that on."

St. Louis-based Ascension Health, the nation's largest Catholic nonprofit health system, is trying to prepare for some sort of bundled payment scheme. "There is value in the bundling of payment," says Robert Henkel, president of healthcare operations and COO of the hospital system, which includes 67 general acute care hospitals, two long-term acute care hospitals, three rehabilitation and four psychiatric hospitals. "There will need to continue to be a movement away from payment that is piecemeal to payment built on episodes of care." At the same time, he says contractual relationships are the future for most hospitals and health systems, not a return to an IDS model. "I don't think that's realistic. You can't re-create regionally located integrated delivery systems across the entire country and you shouldn't just throw away the good operating entities that have grown up since," he says. "There will need to be a thoughtful approach to contractual relationships that puts the patient at the center of things."

In some markets, Ascension Health is well-positioned, he says, in that the local hospitals already have relationships with providers of ancillary services that the hospital system would build on or link to more tightly via care contracts.

"I don't believe for a moment that it would be our intention to build every element of the continuum of care to serve in all our communities," he says. "In some, we already have them, and others, there are strong providers that we won't duplicate."

Philip Betbeze

The Art of Compromise
Health plans' strategy to offer reforms could limit the impact of a government-sponsored plan.

Private health insurers won't like hearing it, but a public plan is going to be part of the future of healthcare delivery.

What that public option will look, however, is less clear. The smartest well-connected minds in healthcare and public policy are not sure, but that hasn't stopped both sides on the issue from predicting the eventual impact.

Private insurers say a public insurance option would lead to their demise as the public plan's lower administration costs, overhead, and physician reimbursement would create a scenario that would kill the employer-based healthcare system. But those who support the public plan say the option will simply create competition that would lower healthcare costs and improve quality and access.

The truth, of course, is somewhere in the middle, but that's not stopping private insurance supporters from voicing their concerns.

"It's one of the those things where some physicians will think the grass is greener, but once they get on the other side, they'll realize it's brown," says Ian Duncan, FSA, FIA, FCIA, MAAA, president and founder of Solucia Consulting in Farmington, CT.

Federal policymakers have myriad benefit design options. They could open the public plan to all Americans or limit the plan to the unemployed, self-employed, and those employed by small businesses; they could create a barebones plan, a basic plan with a preventive focus, or one that is similar to a private plan but with lower premiums because of lower overhead; they could pay physicians and hospitals at current Medicare rates; they could mirror private insurer payment levels; or they could pay somewhere in between.

The most likely scenario is that the feds will open with a compromise public plan to a limited population, such as small business employees, the self-insured, and the uninsured. Smaller businesses are struggling with spiraling healthcare costs and often must decide between offering health benefits or laying off employees.

This smaller plan could find support—or at least muted acceptance—from multiple stakeholders. Private plans would still lose business, and doctors and hospitals would face lower reimbursements, but it could serve as a compromise in a major healthcare reform package.

The Lewin Group, a healthcare policy research and management consulting firm owned by Ingenix, which is a wholly owned subsidiary of UnitedHealth Group, in its April report, The Cost and Coverage Impacts of Public Plan: Alternative Design Options, predicted nearly 43 million people would enroll in the public plan if it is opened to only small employers, individuals, and the self-employed. The report added that 32 million Americans would flee private plans under this scenario.

That is a far cry from the 119 million The Lewin Group predicted would leave private insurers if the public plan is open to all Americans.

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