Are the incentives aligned and flow of funds understood?

Are the incentives aligned and flow of funds...

If the purpose of the new system is to ensure that healthcare is coordinated around the person rather than the organization, then money flows will have to be structured with the same end in mind.

Partner and Chairman

KPMG in the UK


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The old mind-set in which each organization tries to maximize volume and reimbursement, will change to one where the whole financial model drives population health and cost containment.

‘Moving from volume to value’ is a good headline to describe this shift but it fails to capture the extent of the challenge of developing and experimenting with new incentives. In some systems the first steps on this journey will be pay for performance and gain-sharing, which provide incentives for providers to come together to redesign delivery models.

In other systems, moving towards bundled payments – where there is a single payment for a procedure, care pathway or extended episode of care – may be possible more quickly. Whatever the approach, this exercise will undoubtedly reveal significant amounts of organizational risk, with hospitals often the most challenged.

This is because previous incentives have driven investment in expensive infrastructure, whereas coordinated care often demands a different infrastructure based on care close to or in patients’ homes. The Boards of these organizations will take some persuading that the new financial incentives are not a threat. Modelling and role play are common techniques for predicting the impact of new incentives and agreeing how gains should be shared.

Even when coordinated care means the amalgamation of different types of care into one single organization – as with an ACO – there are still risks associated with the shift in funding from one division to another. It is unlikely to be as easy to move assets and staff from an acute, curative model of care into primary care and prevention as it is to shift the flow of funds.

When redesigning incentive structures across or within organizations, you can become fixated on the money – forgetting that culture, mindset, motivations and control are also hugely powerful forces at play. Some healthcare organizations, such as Virginia Mason Medical Center in the US, have had great success by recognizing that incentives are not the same as motivations. Through their Physician Compact, they worked with their clinicians to first articulate their intrinsic motivations for being part of the organization. This has allowed them to have a much broader, real-world conversation about changing ways of working than just focusing on explicit financial incentives.

Case study: Germany – Bringing the costs down: Healthy Kinzigtal

Gesundes Kinzigtal (Healthy Kinzigtal) is a small but ambitious population based integrated care project in the Southwest of Germany. Founded by 35 physicians in 2005, it has grown to become one of the flagship coordinated care initiatives in the country. Responding to government cuts to medical care, the founders made it their goal to develop a new, sustainable model that would bend the cost curve for German healthcare downwards. Their plan was to develop an accountable care arrangement to cover 31,000 state insured people in the region (out of a total population of 60,000 inhabitants).

Having established a management company, they made an agreement with the state insurers that if the care cost margins of the population go down (compared to the start of the scheme), the profit is shared between the management company and the state insurers. If costs rise, however, the management company bears the loss.

After 10 years, Gesundes Kinzigtal now consists of more than two dozen service partners including hospitals and nursing facilities, and 57 corporation partners such as fitness clubs and cultural associations. The results of these efforts include:

  • By 2012, a saving of 4.6 million Euros per year for the costs of care for the 31,000 insured population.
  • A significant decrease in overall mortality.
  • People in the project needed care at a later age.
  • Well-being increased in more than half (51.1 percent) of the population.
  • 98.8 percent of the members would recommend it.

Gesundes Kinzigtal shows that a better coordination of healthcare and enhanced self-management capabilities of patients in combination with more intensive health promotion and preventive programs will lead – at least in the medium and long term – to significant savings and improved wellbeing compared to typical care.

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