Insights from Dr. Michael Jellinek: Fee-for-Service vs. Population Health


Michael Jellinek, MD is an experienced health care leader currently serving as advisor to Avant-garde Health. As a C-suite executive in and around Greater Boston, he successfully built and led high-performing hospital teams through his commitment to innovation and continuous process improvement.

Understanding that many members of our cohort are managing and considering new payment models, we’ve asked Dr. Jellinek to share his perspective on transitioning away from fee-for-service payment to an innovative value-based care framework. He has been published in JAMA (April 26, 2016. Vol. 315. Number 16,  pp. 1699-1700) on the topic of trustees moving to population health management, which he defines as “a set of activities focused on a defined population that improves quality and outcomes while lowering the total costs of care and is substantially incentivized through contracts that accept financial risk and gain.” This model encourages heath systems to create value by providing efficient, high-quality patient care, implementing preventive services, and decreasing unnecessary use of services. For Avant-garde Health clients focused on value-based care, these are the goals our analytics help them achieve.  

How is population health management different from a fee-for-service model? Under fee-for-service, every person largely works for themselves where individual physicians are rewarded for their own productivity, and budgets are built on the volume of visits or procedures. There’s little incentive to collaborate, where the population served would benefit from cost-effective, efficient delivery of quality care. For example, the use of an expensive hip implant by one orthopedic surgeon increases the cost of the service for those who pay for care, but does not generally affect the salary of other staff physicians. However, under population health management, total expenditures come from a single budget and reflect the cost of all related medical services. In this model, understanding actual costs encourages protocols to coordinate inpatient and outpatient services using metrics based on patient outcomes. This means that each decision any provider makes along a patient’s care pathway impacts funds from the total budget.

Why is it challenging for leadership to transition away from the fee-for-service model?
In terms of leadership, trustees often embrace the fee-for-service culture because most board meetings include a review of volume metrics, such as admissions, outpatient visits, ancillary services, and their effect on the annual operating margin. In addition, many hospitals function with a burden of debt, a vulnerable credit rating, and a small operating margin so trustees learn that increasing volume is the key to success. In contrast, population management requires a different approach to supporting the operating infrastructure. For example, an investment in more care coordinators and new IT systems, which may drive down costs in the long term. In this model (with its financial risk), cost-effective, quality outcomes are the measure of success.

What impact does maintaining the status quo have on the community outside the hospital walls? It’s not surprising that incentivizing volume results in overuse and inefficiency. It’s also not surprising that health care expenditures are a disproportionately high share of all spending on social services. Rising medical costs result in lower budgets for education, housing, and public health. Costs will continue to increase with expensive advances in genomics and new medications. If we don’t manage costs with new ideas that focus on the populations we serve, employers will pass on higher costs to their employees by increasing out-of-pocket deductibles and co-payments, which lowers the level of disposable income of the employees and affects the economy overall. Health care systems, specifically non-profit organizations, have a responsibility to the populations they serve. Focusing on cost control is not just a nice thing to do, it’s the right thing to do (and some would say ethical thing to do) when escalating spending can be avoided.

If trustees have the authority to drive this change, how should they proceed?  First, trustees should engage in forthright discussions about their difficult choices. Second, if self-insured for employee health benefits, the trustees should focus on the financial and societal benefits to be gained by using population health management to care for the employees. Third, trustees should prioritize efforts, such as reducing readmissions, that have positive common ground between fee-for-service and population health management. Fourth, trustees should ask management to present population health management metrics, such as outcome measures and details of total medical expense. Fifth, trustees should invest in developing teamwork in primary care, care coordination, and participation in pilot population health management programs. Sixth, trustees should encourage insurers to negotiate on a population health management basis rather than fee-for-service basis.

How does the political climate impact the transition to value-based care?
Despite the current administration’s policy to eliminate or scale back programs like bundled payments which encourage population health management, hospital leaders have to ask themselves if it is a health system’s mission and obligation to society to provide patients with quality care at the lowest cost? Is it good to operate as efficiently as possible? Is it good to reduce spending and eliminate uncecessary procedures or hospitalizations? If they believe that it is their responsibility and their obligation to serve society with cost-effective quality care, then transitioning to an operating model focused on cost management can be the first step. Understanding true costs with solutions like Avant-garde Health’s analytics can provide the foundation for cultural change. Transparency across quality and cost metrics will foster collaboration, which generates best practices and encourages efficient protocols. In the end, quality will be higher, cost lower and more patients will be served if we take responsibility to optimize any budget item, whether a DRG or an entire risk contract.

Dr. Jellinek has more than 35 years of healthcare system and hospital administration experience, and an impeccable track record of collaborative clinical program development and successful hospital growth. He most recently served as chief executive officer for Lahey Health Community Network and chief clinical officer at Partners HealthCare System. Previously, Dr. Jellinek spent 11 years as president of Newton Wellesley Hospital, a 240-bed community teaching hospital in Newton, MA. In his time at Newton Wellesley Hospital, his team improved the hospital’s budget performance from a 15 million dollar deficit to over a 20 million dollar surplus, and increased its net patient service revenue by $300 million. Dr. Jellinek spent 33 years at Massachusetts General Hospital in increasingly senior roles, including, senior vice president for administration, vice president for ambulatory services, and associate chief of psychiatry. Dr. Jellinek is a highly regarded child psychiatrist, and is board certified in pediatrics, general psychiatry, and child/adolescent psychiatry. He has been a professor of psychiatry and of pediatrics at Harvard Medical School since 1996, has written 124 original reports, 240 chapters and articles, and edited six books. He holds an undergraduate degree from Columbia College and received his medical degree from the Albert Einstein College of Medicine. He spent his residency training at Montefiore Hospital and Medical Center in the Bronx, New York, Boston Children’s Hospital, and Massachusetts General Hospital.