Today’s Managing Health Care Costs Number is 90%
There’s a lot of momentum behind an effort to decrease our reliance on fee for service as a payment methodology. Fee for service drives higher utilization, and high margins for high technology services (which have low variable costs) lead to sometimes-dramatic overuse of these services. Anyone who says we don’t know how to embrace innovation in medical care hasn’t looked at the rapid adoption of PET scans or IMRT (intensity modulated radiation therapy).
I’m a big fan of Catalyze Payment Reform, an employer coalition that aims to push 20% of provider payment to value based payment by 2020. (More on “value based” in another post). CMS has announced that it wants 90% of hospital payments to have a value based component by 2018. But even those reimbursements will largely be built on a foundation of fee for service.
I want to devote today’s blog to a recitation of why we shouldn’t seek to banish fee for service. It’s an important element of within a portfolio of payment methodologies – and there are good reasons to pay fee for service to some providers for some services. Fee for service should diminish as the payment methodology in the US – but we shouldn’t seek to banish it.
Fee for service is the “better” method of payment for
· Services which are high value but currently have low utilization. This includes primary care services and immunizations and colonoscopy. Does anyone think that including colonoscopies in a capitation makes it more likely that the affected population will get more colonoscopies?
· Services which represent new and unanticipated advances – and which weren’t anticipated when a budget was created. Hepatitis C treatment should be made readily available to those with Hep C. Including this cost in a global budget would induce lower utilization, which is contrary to public health good.
· Unusual medical care – like treatment of certain orphan diseases, or multiple organ transplants, should ideally be “carved out” of a capitation. They might be included in a bundle –so there is no obligation to pay for every gauze pad used or every microgram of a biologic medication. But this type of care doesn’t fit well into budgets, and failure to carve these cases out is likely to lead to “dumping” of patients who can benefit from these services.
· Care delivered in rural communities, where the population is not large enough to achieve actuarial stability.
· Care delivered by fragmented providers. Again, there can be value elements in payment (such as patient centered medical home payments, pay for performance, and even shared savings which must consider statistical validity. But fee for service almost certainly has to underlie this value-based payment
· Care delivered by physician organizations at academic medical centers. These centers naturally attract an especially sick population, and risk adjustment just isn’t adequate to fully address this issue. It’s possible to create a population budget based on past experience – but any population budget encourages the group not to welcome the sickest members into their risk pool. But that’s why these physicians are working at an AMC in the first place!
Many non-fee-for-service payment methodologies require some fee for service element – and fee for service claims data helps us evaluate whether there is stinting on medical care. Fee for service claims data is also still a major source of quality data.
The top diagram above shows the desires of many health policy experts – to dramatically reduce FFS, or even eliminate it. I believe that we instead want the second diagram, showing that we will re-equilibrate fee for service - yet it will remain an important element of the portfolio of payment mechanisms.
Some past posts on this subject:
