Costs - Is Fee-For-Service Medicine the Primary Cause of High Health Costs and Mediocre Care?

If So, Should It Be Curtailed, and How?

A chorus of opinion is growing out there among health care critics, academic pundits, integrated systems with salaried doctors, employers, and government health officials that fee-for-service is the main cause of bad elements of U.S. medicine. These include,

•Soaring costs

•Inconsistent quality

•Duplicated services

•Poor coordination

•Sketchy collaboration

•Inadequate follow-up

•Too many specialists chasing too many sick patients

•Incentives to commit greed, and even fraud

If only, some argue, we could,

•Herd doctors into larger groups

•Place doctors on salaries or hourly wages

•Adopt universal prepaid care

•Remove incentives to perform procedures and tests.

•Create “medical homes” for patients by placing them under one doctor’s or one group’s guidance.

•Pay a single fee on a risk-adjusted basis for spectrums of care for disease episodes.

•Integrate services for chronic disease into discrete reimbursable packages

•Bundle bills for hospitals and doctors into one predictable and transparent fee package known in advance

No doubt, discrete fee-for-service paid by third parties for every imaginable service generates real problems.

One case in point is the 10% Medicare fee reduction doctors will face in 2008 under current law, followed by eight annual reimbursement cuts to follow. If these cuts go through, 28% of 9000 doctors in a national AMA survey said they will stop accepted new Medicare patients in 2008, and 64% will cease seeing these patients by 2015. That happening, coupled with an anticipated doctor shortage, could trigger a national access crisis.

Another problem is “fragmented care.” Critics use this umbrella term to describe when occurs when doctors are paid individual fees for what they do. In a June 21 Wall Street Journal Op-Ed piece, “How Many Doctors Does It Take to Treat a Patient,” Dr. Peter Bach, a doctor at Memorial Sloan-Kettering who recently served as senior advisor to CMS, described the situation:

“Medicare patients bounce between many doctors, most of whom are unaffiliated with one another and as a result, few patients have a single doctor who is central to the care they receive.

The typical Medicare patient in one year sees seven different doctors, including five different specialists, working in four different practices. For vulnerable patients with multiple chronic conditions, care is even more fragmented and involves more doctors. Forty percent of the patients in our study had seven or more chronic conditions and they saw on average 11 doctors in seven practices. The upper quartile of this group saw 16 or more different doctors in nine or more different practices.

Health care is like this because of the way doctors are paid. Few doctors receive an hourly rate or a set annual salary; most are paid according to a system called “fee for service,” in which visits, tests and procedures are reimbursed separately. Doctors face incentives to provide more services and more expensive services and they do just that.”

Bach says doctor spending will rise 6% in 2007, and may top $500 billion in 2008. He believes patients would be better off seeing fewer doctors working together to develop “a cohesive coordinated plan of care.” He commends the American College of Physicians and the American Academy of Family Physicians for recommending a “medical home” model for Medicare beneficiaries. Congress is now considering the home model for Medicare patients (Tax Relief and Healthcare Act of 2006). But Bach quickly adds doctors shouldn’t be paid extra for “coordinating care” or for providing “appropriate” care.

What will it take to tamp down fee-for-service? And how we do it? By government fiat or market forces? A lot of models have been tried – prepaid care, diagnosis related groups, systematic fees reductions, claims rejections , utilization review, gatekeeper physicians, exclusion of expensive doctors or those doing inappropriate services from “preferred “networks, large integrated systems offering prepaid one-stop care - and a lot of models have failed, at least on a large enough scale to deflate overall medical costs. Whatever’s tried, it seems, fee-for-service doctors find a way around.

Furthermore, how do you address these realities?

•75% of America’s 750,000 doctors are in groups of five or less and are paid FFS,

•40% practice solo or in groups of two, also paid FFS

•Who will choose the “medical home”?

•What about “cash only” practices”?

•What about rural practices?

How do fence off doctors from the rest of the American economy, which operates on a fee-for-service basis? How do you exclude or include those doctors who make their living doing mostly single procedures – colonoscopies, vasectomies, cosmetic surgeries, and a myriad of other things? What about those doctors who function in 190 different medical specialties? And what about innovative niche practices – like retail clinics – that keep cropping up? What about the trend towards on-site work clinics in corporate settings? Do these corporate clinics qualify as “medical homes?”

And what about all those federal regulations – Stark rules, certificates of need, anti-monopolistic rulings, IRS laws – that stifle innovation, cooperation, and collaboration between doctors and hospitals? After all, hospitals are where 50% of health costs reside. Will adding thousand of other pages to curtail fee-for-service to the already fat 140,000 pages of the Mesdicare code book make a difference?

Lastly and perhaps most importantly, what about those assertive new health consumers armed with HSAs and/or in high deductible health plans who are comparison shopping for price and who want choice, convenience, and freedom to choose and dictate their own care – and to go to whomever they want for care?

I‘m skeptical centralized top-down government can seriously curtail individual fee- for-service or even control the underground medical economy. Regional market forces may cause these fees to be bundled and integrated into packages for a range of services for a given disease or procedure to be established, and prepaid care may prevail in the far West, but I don't foresee and can't envision abandonment of fee-for-service medicine in America.

Fee-for-service is the market engine that drives decentralized Western capitalism. It’s the basis for market transactions in every sphere of our daily lives. It rests on trust and integrity of responsible seller and informed buyers. Maybe health care radically differs from other transactions, but I doubt that it does.

Moreover, we live in a democracy, where people are free to seek opportunity, act in their own self-interest, live and move where they please, and outside of Medicare and Medicaid and health plans, physicians are free to set the fees they please; and consumers are free to accept or reject those fees.

The question is, if I may use a bad pun, what’s feesable across the broad health care economy? Maybe taking away the present physician reimbursement formula, which calls for a 40% reduction in fees over the next five years and replacing it with fees geared to annual cost of living increases, or increases in overhead expenses may be a start. I invite readers out there to offer suggestions and comments.