Reforming Fee-For-Service – Reality or Fantasy?

I have a friend, Brian Klepper, PhD, a prominent health care reformer and analyst, maintains revitalized managed care can reign in excess fee-for-service costs. When I point out 35 years of utilization review and gatekeepers have failed to reform fee-for-service doctors, and antagonized patients in the process, he shrugs and insists managed care “has never really been tried.”

Here are selected excerpts of Brian’s reasoning from The Health Care Blog, August 15, in a piece called “Managed Care Redux.”

Of course, the excess in America’s health system doesn’t just happen. Its structure creates incentives for waste. Fee-for-Service reimbursement, the prevailing payment methodology for the last several decades, rewards the delivery of more products and services rather than the right services. A lack of pricing and performance transparency makes it difficult to see poor or even dangerous performance when it occurs and, worse, has created an opportunistic culture throughout the entirety of the health care sector. And by spending a small but still significant portion of the largesse – about $350 million out of $2.2 trillion in industry revenues in 2006 – on lobbying, the industry convinces our federal lawmakers that the status quo is worth preserving.

My friend Jerry Reeves MD, the national Chief Medical Officer for the Unite Here Union and a consultant to many health management projects around the country, shows a simple slide that illustrates this point dramatically. It was developed several years ago, when he was the Medical Director for the Culinary Fund Health Plan in Las Vegas. In it, he takes several straightforward conditions, holds outcomes constant, and then shows the resources required by the lowest cost, highest cost and average Vegas physician. The results are startling. The most expensive doctor often costs 8 times as much as the least expensive one to get the same outcome.

Physician Costs for Specific Conditions in the Las Vegas Market

FP, otitis media, low cost, $46, average (+137%), high $412 (796%)
IM, angina, low cost, $86, average $297(245%), high $743 (764%)
Cardiology, angina, low cost ($241), average $611 (+154%), high $1389 (476%)
Orthopedics, knee surgery, low $2727, average $4473 (+64%), high $9383 (+244%)

My sense is that we’re about to see a new era of managed care, where the market players finally do all the things they promised to do last time but never did: analyze and reward performance, give patients, providers and purchasers better information to make better decisions, and invest in tools and processes that drive waste and inappropriateness out of the system. All this would be a breath of fresh air for America.

Brian isn’t alone. Inside CMS, serious discussions are underway seeking ways to contain and rationalize fee-for-service, as reflected in this comment by Peter Bach, MD, now of Memorial Sloan Kettering and formerly senior advisor to CMS,

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. 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.

Imbedded in these remarks are four beliefs: 1) distrust in the integrity of independent practicing physicians to do the right thing without being monitored and disciplined 2) the premise that fee-for-service, the central cog in the transactional machinery driving the U.S. economy, shouldn’t apply to health care; 3) faith in the concept among managed care believers, introduced 35 years ago by Doctor Jack Wennberg of Dartmouth, that somehow one can achieve practice homogeneity and zero variation among fee-for-service doctors in different sections of the country; 4) third parties can effectively micromanage what doctors charge and how they practice.

When I ask Brian how FFS reform how this is be done, he talks of new IT management platforms, strong leadership by fed-up business executives burdened by health costs, doctor fee profiles and quality protocols, rewarding good doctors and punishing bad ones, introducing total transparency for all to see , organizing doctors into mega-groups numbering in the tens of thousands, and creating market pressures forcing doctors to comply.

I follow Brian’s logic, I applaud his idealism, but I fear he may be fantasizing. In America, every economic sector has high, middle, and low ends. Health care is no exception. ONe diffence, which has to be corrected, is that consumers up-front don't always know what costs and benefits are.