The Problem with Pay-Per-Service in Healthcare and IT

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I caught part of a Charlie Rose interview with Jay Rockefeller this morning (episode not online yet) and heard the senator say that pay-per-service healthcare is a bad idea.  Being deeply immersed in the cloud computing discussion that hangs its hat on a similar payment model, I paid more attention than I might normally.  He said it’s bad because it encourages providers to add more services to make more money - regardless of their appropriateness.

One alternate model is a “pay-per-outcome” model like the one the dentist uses for my son’s orthodontia.  For a fixed fee up front, my son gets all of the office visits, hardware, adjustments, etc. until he is done.  This model seems to work best where the overall process is pretty well defined and exceptions to the process are not too costly.

I would propose that the pay-per-service model itself is not the problem in healthcare, but that it’s the particular situation that confuses things.  The healthcare marketplace has complex products and services, a vast and oftentimes confusing provider network, and unclear costs.  Interestingly, this is very similar to the context that surrounds IT services within an enterprise.

I think both of these marketplaces, healthcare and enterprise IT, suffer from:

  1. Customers who don’t understand the menu of services available
  2. Customers who don’t understand which services map to his or her problem(s)

The result of this situation is a small set of customers (patients, enterprise IT users) who put ultimate trust in their provider and let them determine which services they need and that the right costs will be charged, and a much larger set of customer who are skeptical, confused and vocal.  We can learn some lessons from this debate in the way we lead and manage the IT function.

The Menu of Services

Have you ever seen a list of services and their costs in your doctor’s office?  You better believe that they have this list and an exact reimbursement rate for each.  Why don’t they share it with you?  For you IT leaders out there, do you offer a list of services IN UNDERSTANDABLE TERMS to your customers?  Do you clearly describe the cost of each service?

Applying the Right Service

When you have back pain, does your doctor describe the course of action in terms of the services he will perform?  Does he provide a list of alternatives that includes the cost differences to you?  For IT leaders, do you describe possible services that could be performed to help your business user add more calls into the call center, for example?  Do they clearly understand the alternatives and costs?

In the end, in healthcare and in enterprise IT, improving the overall service model and cost effectiveness depends on transparency, clear language and education.  Are you doing everything you can to improve these things in your organization?

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