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 Foundation, The Bipartisan Policy Center, The 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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