Will fee for service ever go away?

The catchy title of a recent Harvard Business Review Blog post, The Big Barrier To High Value Health Care: Destructive Self-Interest, suggested that the Institute for Healthcare Improvement (IHI) is forging arrangements that can overcome fee-for-service reimbursement’s propensity to drive excess. As the honest broker, IHI could advocate for arrangements of mutual self-interest based on the right care, better outcomes and less money. Employers and unions would get lower costs, with improved health and productivity. Health systems and health plans would win more market share (at their competitors’ expense), realizing longer term relationships that could facilitate sustainability as market forces intensify.

The substance of IHI’s description was less satisfying, though. Their principles — common goals, trust, new business models, and defining roles for competition and cooperation — are obvious ingredients in any workable business arrangement. But the authors never talked about the money. That left plenty of room for skepticism by those of us who have heard more than one CFO ask, “Why should we take less money until we have to?” What, exactly, is the incentive for health care organizations to moderate their care and cost patterns?

The harsh truth is that, so long as fee-for-service (FFS) reimbursement remains in place, we won’t make headway against the immense excesses that have plagued US health care. FFS pays for piecework, so it encourages more services while failing to appreciate results and value. All services are considered appropriate, so all are reimbursed without differentiating what results in better outcomes. All health care professionals and organizations, except for primary care, benefit from this structure, so it has become nearly impossible to dislodge.

Reform has held out the promise of moving payment from volume to value. But it is still mostly an aspiration and, no doubt, the rank and file of the health care lobby is working hard to assure that it stays around as long as possible, independent of external pressures. Most accountable care organizations, for example, are still paid under FFS, which is why so little real progress has been made in changing the ways care is delivered.

A recent Medscape article asked whether FFS might really disappear. It pointed out that while recent reports from four prominent health care policy groups – The Robert Wood Johnson FoundationThe Bipartisan Policy CenterThe National Commission of Physician Payment Reform and The Brookings Institution – had all strongly advocated for a transition away from FFS and toward some form of value-based reimbursement, CMS’ progress toward this goal has been glacial. Paul Ginsburg, the highly respected Director of the Center for Studying Health System Change, notes that Medicare hasn’t announced that it will drop fee-for-service or reduce reimbursements for physicians who continue with it.

That, of course, is welcome news to most doctors. Many physicians are adamant that FFS should remain, and that their clinical judgment is not influenced by money. But the truth is murkier. There is a mountain of literature on unwarranted practice variation and overtreatment, and their relationship to income.

Most physicians also have nagging doubts about money’s role. In a 2012 survey by the Physicians’ Foundation, 86% of almost 14,000 responding doctors admitted that “money trumps medical care” was either very important or somewhat important in medicine’s decline.

In the worksite clinic sector, which caters to employers who have become value-sensitive, many vendors, including my firm, have stepped away from FFS reimbursement. Instead, they pass through operational costs with no markup, and then charge a per employee (or per enrollee) management fee. This means that they have no financial stake in delivering unnecessary care (or denying necessary care). Their clients evaluate their performance through measurable changes in health outcomes and cost. It is in the vendor’s interests to implement mechanisms that drive appropriateness inside the clinics and, to the degree possible, downstream, throughout the continuum.

The differences between this and conventional, FFS medicine are profound. FFS reimbursement has transformed much of health care into a merchant enterprise in which the central incentive is to order more products and services, for the margin associated with each one. In the clinic model, the goal is to manage the process as effectively and efficiently as possible. It is a payment model that is more aligned with the interests of the patient and the purchaser.

There are a range of alternative payment models that make a great deal more sense than what Americans are saddled with today, with more rational incentive structures for care. The health care industry will continue to fight hard to protect the excesses it has come to take for granted. As with the rest of meaningful reform, it will fall to business, the most important health care purchasers other than government, to come together to drive approaches that can bring health care back into balance. The industry is counting on business to remain unfocused and ineffective. The question is whether businesses, as health care purchasers, will remain impotent or learn to leverage their collective heft.

Brian Klepper is chief development officer, WeCare TLC, and blogs at Care and Cost.

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  • doc99

    Before you put the onus on the doctors for healthcare cost, you might wish to check out this graph .

    Medical care is the only business enterprise which claims to save money by increasing the number of middle men.

    • J.L. Creighton

      And now with the ACA, we’re adding layers and layers of MORE bureaucrats and administrators, not to mention a whole cadre of new IRS enforcement agents. Wait till we see that same graph of yours in 2018.

  • Dr. Drake Ramoray

    Bundled payments and pay for performance hurts small private practices and rural practices. Those of us in less affluent areas will be graded on the same performance and bundled marks as those in wealthy neighborhoods. Medicine will become a big game to collect as many “healthy patients” as possible. Many doctors will flee the under served areas (those that haven’t already).

    There is already a dearth of Endocrinologists in the state next to mine as megacorps have moved in and tried to grade Endos for pay for performance. The removal of fee for service will have me leave my semi-rural practice, probably go concierge or go teach. Big picture the loss of fee for service will grow concierge medicine and move this country towards a two tiered medical system. Those who are wealthy, educated, and have the means will have ready access to specialists and the best care. Those that don’t wont. It will exacerbate the existing problems we already have with physicians not taking Medicaid, but reduce access to the needy even further.

    • buzzkillerjsmith

      Is the translation of “value” bundling and PFP?

  • Tiredoc

    In countries that completely outlaw fee-for-service, it is common practice to bribe the physician and nurse in order to get better care. So, no, you will never get rid of FFS, even if you make it illegal.

    Doctors make about the same amount of money as they did 20 years ago, if not a little less. There are about the same number of doctors as there were 20 years ago. Despite all of the limitations on doctors profiting from what they order, Heathcare costs continue to rise.

    • querywoman

      CUTE, Tiredoc! A reality-based response!

  • Steven Reznick

    I doubt that Brian Klepper has ever provided care for anything or anyone. I would additionally like to see the demographics of his firm and actually speak to or poll his co workers about their health and treatment by PhD Kleppers non fee for service system. How many of them still pay out of pocket for botox, restasis , testosterone for supposed low T syndrome, bioidentical compounded hormones , chelation therapy and a plethora of vitamins , minerals supplements and herbs on our shelves but lacking any evidence yet that they provide any benefit. Patients generate these extra costs daily with doctors having little or no control over these costs. At the same time that equipment manufacturers, pharmaceutical companies and health care administrators jack up the price of current health care figures, physicians who practice honest and ethical medicine in a fee for service setting, take the heat from policy wonks like Brian.

  • Deceased MD

    I like Brian and think he has done great work with the RUC-as much as one can. But I disagree with the idea of getting rid of fee for service. I don’t actually think that will solve the problem. Since I believe that most costs as doc99′s graph shows are related to growing admin, and medical device/pharmaceutical/bureaucratic costs.

    As long as there is overly high reimbursement rates for things like pharmaceuticals and hospital costs etc. I think there will always be more seeking the renumeration. This pattern creates an industry. As they say, follow the money.

    I was on a site for pharm reps a few months ago. What I soon realized is how they have a nose for following the money. The buzz was that pain management compound meds pay extremely well. I can’t give you numbers now but it was pretty shocking. They can make thousands for a prescription.

    Now these meds may work better for some but so far they have not cured cancer or pain. So paying exorbitant amounts for these compounds is just creating an industry. Why is this so much more valuable than a PCP visit? But the fact is, that it just is.