Will replacing fee for service really reduce costs?

In this enlightened era of evidence-based medicine, you’d think that the progressive academics, viziers, and mandarins who are cluttering the policy making commentariat would pay more attention to what was tried before. That should be doubly true if those lessons come from that health care nirvana called Europe, where enlightened central bureaucracies wisely allocate health care for its caffè sipping, plaza strolling and beret adorned citizenry.

Case in point is “bundled payment,” which has been underway for several years in the Netherlands. Thanks to this timely New England Journal perspective from Jeroen Struijs and Caroline Baan, readers can get some insight about what is and isn’t known about the topic.

By way of background, the Dutch require citizens to buy subsidized private health insurance for “short-term level” services, such as outpatient care and acute hospitalizations; prolonged care and durable medical equipment is covered by public insurance. Their reliance on private insurance has been held up as a role model for the United States.

According to Drs. Struijs and Baan, starting in 2007, private insurers began offering global payments to legally defined physician “care groups” who, in turn, accept the up and downside risk for persons with a chronic condition, such as diabetes, COPD or vascular disease. The single payment is negotiable for a defined bundle of services related to the condition itself. The care groups are typically made up of primary care doctors. They, in turn, provide and arrange for all the necessary care services and, when necessary, contract with other non-hospital providers (for example, labs) or other services. Patients with services falling within the bundle coverage provisions have no out of pocket expenses.

So what happened?

1. Variability persisted. Bundled payments turned out to vary from group to group and cannot be explained by patients’ burden of illness or the intensity of services. Other factors that probably played a role were differences in how the bundled coverage terms were interpreted and, thinks the DMCB, the negotiating leverage of the various care groups.

2. Integration grew. Providers became organized with greater attention to coordination, protocols and consultations. There was a greater emphasis on use of the EHR. In surveys, physicians reported that they believed they are providing better care.

3. Transparency increased. Providers were obligated to document and report performance against established benchmarks.

but …

4. Outcomes, you ask? According to authors, “…it is still too early to draw conclusions about the quality of care or the effects on the overall cost of care.” There has been no observed impact on glucose control (A1c), lipids, patient satisfaction or cost. So far.

5. Market power increased? Some subcontractors reported that they are being squeezed by the care groups’ local market power. What’s more, patients’ freedom of choice in the selection of subcontractors may have been curtailed.

6. Bundle “boundaries?” The Dutch are still working to define just what services are covered by the chronic care bundle. That’s important, because the care groups have an incentive to cost shift.

Most U.S. observers seem to agree that the fee-for-service system is broken. Drs. Struijs and Baan are reminding us that replacing it, despite policy savoir faire of many U.S. europhiles, isn’t necessarily going to reduce costs, increase quality or not introduce its own set of unintended consequences.

Jaan Sidorov is an internal medicine physician who blogs at the Disease Management Care Blog.

Submit a guest post and be heard on social media’s leading physician voice.

Comments are moderated before they are published. Please read the comment policy.

  • http://twitter.com/FairCareMD Alex Fair

    The problem with bundling is that while it denotes simplification, it makes metric design or outcome evaluation much more difficult beyond a single episode of care.  We see this on our site where Docs package up an ACL replacement, but this does not cover things like complications or physical therapy. Bundling only goes so far and then it becomes accepting additional risk among a loosely defined network, requiring the consolidation noted above.  

    Additionally, extensive bundling requires even more “mandarins and vizers” (love that image /btw) to read the tea leaves and predict costs verses payment.  Having been one of them for a group of over 200 doctors, I can tell you this  process is complex and costly, fraught with many assumptions, and often incorrect.  You can’t possibly have enough information about the inbound population in a new contract and managing how your team “performs” is invasive and difficult.  

    In my view, more complexity should not be engendered.  Fee for service should not be criminalized, it should be simplified and made more efficient.  Swinging the pendulum too far towards bundling results in capitation, which, as we know, didn’t go so well.

  • http://www.facebook.com/people/Maggie-Keavey-Kozel/1383572933 Maggie Keavey Kozel

    Our healthcare system needs a reform of mindset.  We need to determine what it is we want our health care system to deliver, and to who.  This has to be done based on medical science and our cultural values, not the marketing efforts of private corporations.  It will only happen if the appropriate set of incentives and disincentives are put into place that support the patient’s best interests rather than special interests. Then we need to figure out the most cost-effective way to deliver that care.
    No one on this planet has figured out how to do this  perfectly, but a whole lot of people are doing it better than us, at a lower cost.  WE need to think about why.  Reducing  the health care debate to FFS or not FFS is too simplistic.  To label it “Europhile” is too dismissive. 

  • http://www.facebook.com/vorand David Voran

    There isn’t anything fundamentally wrong with true “fee for service.”  The major problem we have today is there isn’t any real competition.  For example, I cannot offer a special fee for a special service and accept what the patient will pay.  The other day I drove 45 minutes from my office at the request of a patient’s family to spend nearly 1 hour with a patient in a rural healthcare facility. Total time away from my office was nearly 3 hours (10-15 encounters).  Even though the family wanted to reimburse my time and effort they were prohibited because the patient was a Medicaid patient.  I suspect my total reimbursement for this episode is going to be less than $100 .. a probable loss in “productivity” of $900 – $1,400.
    I’m all for fee for service as long as we can remove the external constraints on letting us charge as much or little as possible or the free market will bear.  But what bristles me is that spending an hour with a patient and not DOING anything but educating a patient to minimize their use of our system is valued next to little whereas spending the same amount of time seeing 4 patients, removing a lesion or two from each is VERY lucrative.  And that discrepancy is what I believe is at the heart of our medical crisis.

  • Anonymous

     You’re are right Maggie and those arguments have been used for years but we don’t yet have a heathcare system or can even come close to a collective mindset about values.  it is even worse now that Corporations are “a person” and can use as much money as they have to buy Congressional votes.  Corporations value profits, even at the expense of say, the country?.  Unions value  tenure and benefits, increased wage even at the expense of efficiency or effectiveness?  

    Other countries (most rich countries) are doing better than the US with healthcare indicators and lower costs because from the outset of being a country or somewhere along the line the govenment has regarded their citizen’s health as a primarly social obligation, outlawed market driven insurance for basic care and instituted a universal system of one kind or another or combination of both. Sure there are problems and physicians don’t make as much money as many in the US.  They also don’t have so many specialists or as much of the chronic preventive disease that has led to the explosion of cardiac and other specialists in the US. The ratings by citizens of these countries is much higher than it is in the US.  

    The 2 most important books about American healthcare are by Paul Starr

    1. . The Social Transformation of American Medicine and the making of a vast sovrerign industry 1984 (a pulitzer prize winner)

    2. Remedy and Reaction: The Peculiar American Struggle over Healthcare Reform October 2011. 

    The first tells how we got into this mess starting 100 yrs ago.  There is a great deal of political detail.  Having read it in a graduate school class which allowed for much discussion, I am eager to read the second.  

  • Anonymous

    David Voran 

    That is an amazing story.  Never heard of a doc now a days doing what you did.  Doctors used to make house calls a lot when I was a kid.  Why would you do it?  If it is because you had some special feeling for the patient?  If so, I would suspect you would not even be talking about the reimbusement..  So can’t the family give you a chicken or something as a gift? 

    And about spending your time telling a patient how to minimize their use of our non-system. Telling them not to use the ER, eat right, stop smoking? patient education. I guess I don’t understand.  There is noone else around to do that?   And it sounds like you would be very rich if all you had to do was remove lesions all day.  That doesn’t sound quite right either.  And where does the person, who has taken really good care of him or herself, doesn’t abuse the system but gets say MS, ALS.  How are you going to charge that patient?  I guess you are a rare breed of family doctor who feels that 1940 was a better year in medicine because that’s what doctors could do – charge as much as the market would bear or as little as they wanted.  Doctors, as I recall, weren’t very rich then.  Now a lot doctors are very rich and we have even more screwed up healthcare.  Go figure.


  • http://www.facebook.com/people/John-Kaegi/100000386043288 John Kaegi

    FFS is one of the root causes of high costs and is a growing cancer to efficient and effective practice of medicine.  Those trying to reform it are well-meaning, but misdirected.  Bundled payments, shared capitation and other Euro-inspired solutions will not work in the U.S.  They are too complicated.  U.S. citizens aren’t familiar with European-style economics and will reject the complexity and social implications of the Old World solutions.  Rather, Americans want simplicity.  Rather than bundling primary care with speciality with hospitals, our reimbursement system should simplify by using the appropriate method for each discipline.  Primary care should go to a salary-plus-bonus system in which physicians and extenders are well rewarded for improving the health of their patient panels…thereby avoiding high, downstream costs of chronic care for many patients.  Specialists should be capitated by modality and hospitals should quit trying to be all things to all people and focus on FFS care for complicated cases and true emergiences.

    John Kaegi
    Chief Strategiest
    Healthstat Inc.

Most Popular