The current payment method is predicated on a reactive healthcare system that accumulates charges for the services rendered during a visit or encounter, and submits a “claim” for the resources of the payor.  Payment cycles range from 10 days to 100 days, with the physician average between 35-45 days and hospitals between 50-70 days.  The vast majority of these claims are from physicians’ offices, where these long revenue cycles create financial strains.  The wide variance in the payment cycles is evidence that the current payment system is filled with friction, delay, complexity and waste.

In the short term, with a year 2011 target, physician services should be paid at the point of service, and the majority of hospital services should be paid at discharge.  This is technically feasible without major modifications of current systems.  In the intermediate term, with a 2013 target, the CMS-1500 and UB-04 transactions should be replaced by a new set of financial transactions that take full advantage of the availability of the Electronic Medical Record.  These new transactions will embed not just the financial content for pricing purposes, but also the clinical content that documents the quality, medical necessity and appropriateness of the medical service provided.  

The lifetime personal health record, the single, up-to-date source of truth about each individual’s health status and health objectives, should exist in “the cloud” (the Internet) and thus be available anywhere and anytime that it’s needed.  Enabled by interoperability and owned by the individual, the PHR will bring together in real-time each person’s clinical, biometric and genetic information.  The PHR will not only be fed by electronic medical records, including prescriptions and test results, but also will be updated in the home by a new generation of connected and aware healthcare devices such as scales, blood glucose meters, exercise equipment and blood pressure monitors.  The PHR should become the source of information between the various providers and entities in the healthcare system.  Today’s HITSP^vii standards and information exchange policy imply that information is transmitted provider-to-provider through exchanges.  In the future, the exchange should always be between the provider and the person’s up-to-date PHR.

Contextual sharing of information must be enabled through wise and systematic evolution of information standards for safe, secure and effective exchange of medical information.  Accurate person identification is central to the safety and utility of any national system architecture.  We must replace the hazardous patchwork of methods used to identify patients in the current systems.  A secure and trusted national healthcare ID system, a unique patient identifier, is needed to obtain the benefit of all of the healthcare information technology investments.  A recently published study indicates that the current algorithmic matching approaches will create additional error in identification of critical clinical information.^viii  These matching errors will propagate as the database grows larger, and without a safe, secure and reliable ID system, clumsily matched IT records will become a new source of medical error.  With an ID in place, the IT community will solve the rest of the information exchange issues.

Next, the HITSP standards must continue to be strengthened around specific, tangible end-to-end objectives, such as replacing the clipboard, that fixture in every physician waiting room that endlessly and inefficiently captures and recaptures specific and predictable elements of demographic, payment and medical history.  Disease- and condition-specific information exchanges must be developed to facilitate care across organizational boundaries and eliminate duplication of efforts.  Programs such as the Physician Quality Reporting Initiative (PQRI)^ix must be implemented through CCHIT-certified^x standards.

Facilitated, programmable networks will evolve to enhance the current provider-centric, reactive healthcare system.  In today’s reactive model, the person/patient must initiate a visit based on self-awareness of a medical problem, with little ability to predict and prevent disease.  The resulting clinical visit is converted to a claim using CPT and ICD-9 codes and is subject to the aforementioned delay in payment. 

In the future, much like the automotive diagnostic systems in a modern automobile detect the need for routine maintenance such as an oil change or tire pressure adjustment, the network will facilitate, or trigger, a proactive healthcare event because of a subtle state change of an individual’s health.  It will alert and provide the relevant context and clinical knowledge to the individual and appropriate caregiver.  The network, with its predictive, learning and adaptive systems, becomes the “virtual medical home.”  The network collaborates with the individual to manage his or her health conditions and objectives by coordinating care across the various entities inside the traditional health system.

Future payment methodologies must include “fee for health,” “fee for outcome,” “fee for process,” “fee for membership” as well as “fee for service.”  Some of these payment methods are being piloted by CMS, states and current insurance companies.  In most cases, these pilots are not systemic changes, rather the dripping out of one more small alteration to see its effect.  This creates confusion and adds complexity to those managing our largest healthcare organizations, while bewildering the smallest organizations.  Emerging innovations need to be fostered by broad payment reform, specifically designed to create a highly efficient, frictionless future state where the incentives of physicians, hospitals and the array of other community-based services are aligned with the interests of the person, family and financing party.  In this future state, quality and medical necessity will be totally transparent, creating significant incentives for innovations in the marketplace, leading to new technology-enabled delivery models.  Among these are “medical homes” and “virtual medical homes” designed specifically to efficiently manage the chronic conditions that are congesting the current healthcare system.  Medical homes will be paid to deliver a health outcome regardless of inputs consumed, competing on quality, cost and service.