Industry Insights

July 16, 2021

The Untold Stories of American Healthcare – Episode #4

The Untold Stories of American Healthcare – Episode #4

Episode 4: Many Healthcare Models in Many Ways

Kathleen Schaum and Dr. Kosali Simon explain how different healthcare payment models throughout history have impacted costs and patient outcomes. 

Most payers and providers agree that our current system needs reform, but it’s difficult to know what that reform should look like. And in the past, even positive changes to our healthcare system have had unintended repercussions. 

In this episode of The Untold Stories of American Healthcare, host Ryann Petit-Frere talks with global healthcare reimbursement expert Kathleen Schaum and health economist Dr. Kosali Simon. They take a look back at some of the major changes to our healthcare payment processes over time and share their insight into ways we could improve in the future. 

Understanding the Reasons for Healthcare Silos

When Medicare was first designed, the healthcare system looked radically different than it does today. 

At that time, people would typically only go to a hospital or to their physician, and everything was paid for with a fee-for-service model. Under this system, hospitals had no incentive to reduce costs or get patients out of the hospital quickly, because the more work they did, the more they’d get paid. 

Schaum explained that diagnosis related groups were created to solve this problem and cut the rising healthcare costs.

“They grouped the patients with like diagnoses into the same group, and that group would deliver to the hospital a set amount of money. If they were able to get the patient well and out of the hospital before they used all of that money, they got to keep the difference. If they kept the patient into the hospital longer and used that money up, then they just lost the money,” she shared.

This new system had an unexpected consequence, though. Since hospitals were no longer incentivized to deliver as much care as possible, they started discharging patients to other places of care, like long-term acute care hospitals, ambulatory surgery centers and skilled nursing facilities. 

“Medicare was controlling the cost in the hospital, but they discharged the people to all these other sites of care which sort of grew, and all of those other sites of care were paid fee-for-service, like the hospital used to be paid,” Schaum explained. 

These healthcare silos are problematic because there’s no incentive for providers to collaborate outside of their own specific part of a patient’s healthcare.

“We are the highest cost healthcare system in the world, and we do not even rank in the top hundred in quality. Everybody has been managing the patient in their silo, but they haven’t been thinking about managing the patient from the beginning of their disease to the end of their disease,” Schaum argued.

How Data Can Inform the Future of Healthcare

After the Affordable Care Act, people have more opportunities to choose when it comes to their healthcare coverage. The ACA also marked an important shift toward a value-based care system, which is built around outcomes and quality of care instead of set fees for services. 

“In healthcare, choice definitely has been shown through evidence to reduce costs and improve outcomes,” Dr. Simon shared. 

However, with the current healthcare system, there’s still no incentive for providers to coordinate outside of their individual silos of care. Dr. Simon believes that policymakers and providers can solve this problem, but to do so, they should rely on data. 

“Data streams play really important roles in both the provider’s ability to design systems and evaluate whether new strategies they’re coming up with are having the intended goals. It’s also really important for policymakers to evaluate if the systems that we’ve put into place give us what we’ve been aiming for,” she explained. 

Dr. Simon also stressed that in order to effectively reform our healthcare system, decision makers need to think about health disparities.

“Payment reform and thinking about ways to improve people’s care is about studying the inefficiencies and inequities that go on in how care is delivered. If we incentivize all providers and everyone who takes part in the care system to think about quality as the ultimate goal, improving outcomes, rather than getting larger reimbursements, we could also be having really meaningful impacts on health disparities.”

To learn more about the Nashville Health Care Council and follow along on our journey through the Untold Stories of American Healthcare, visit And be sure to subscribe, rate and review this show wherever you get your podcasts.

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