Fee-for-Service -  The Solution and Not the Problem to Lower Health Costs

Keywords -   Fee-for-service,  health costs,  Medicare, Mediscare, physician incomes, premiums

To doubt everything or to believe everything are two equally convenient solutions; both dispense with the necessity of reflection.

Bertrand Russell (1872-1970). Science and Method (1913)

August 23, 2012 – President Ronald Reagan is famous for saying, “Government is the problem and not the solution.” I  will not be famous for saying, “Fee-for-service  is not the problem but the solution.”

Actually I am not the first to say it.   Twila Brase, president of the Citizens Council for Health Freedoms (CCHF) said it in the organization’s eNews newsletter.  I had not previously heard of CCHF, but that’s all right.  I liked what she said.

She says the real problem is third party payment, whereby health plans are paid not the physician, and where 3^rd parties “make out like bandits.”

She explains that under 3^rd party arrangements,

·         Physician incomes dropped by 7% from 1995 to 2003, and even more since (Obamacare promises to drop them 40% over the next decade).

·         For business, health benefit costs per employee will rise 7.2% this year (a big reason  why national business organizations like the National Federation of Indpendent Business (NFIB) and the Chamber of Commerce oppose Obamacare)

·         Premiums under Obamacare will rise up to 30% (Obama promisded a reduction of premiums of $2500 per family by 2016; instead a rise of $2500 is projected).

If you are bewitched, bothered, and bewildered by these figures, remember the culprit here mind may be  3^rd party administration costs and the bureaucracy required to impose and respond . Together they make up to 40% of health costs costs.

Remember too that  the government is involved.  Government has to account for every penny spent on entitlements with protocols. documentation, and regulations.  According to David Brooks in a New York Times), "A Guide for the Perplexed,"  entitlement spending  in 1962 accounted for 14% of every government dollar spent , today it makes up 47%, and by 2030 it  will be 61%. There will be no room left for spending on education, roads, and defense.

The solution may reside in government spending a fixed dollar amount for health benefits.   Government  will define the package of benefits.  Medicare and competing health plans will bid on the package. Government will give  seniors a payment equal to the 2^nd lowest bid, and patients will  pay out of their accounts.

This could all be done on a fee-for-service basis.   Patients would pay doctors out of their accounts, and could feel free to negotiate with physicians for  the lowest price. Physicians, meanwhile, could lower their fees.  Among medical practices,  it is known that about 50% of overhead is due to 3^rd party administrative expenses, and fees could be proportionally lowered to compete with other physicians.   Cash-only practices now often charge 50% less than private plans, and even less than Medicare and Medicaid because there is no 3rd party involved and overhead is less.

The government elite does not agree market-competition will reduce costs.  Peter Orzag, former director of the office of management and budget under Obama,  calls the idea of competition lowering costs the “competition fairy.”  And the big health plans with the following revenues and number of employees -  United Health Group, $101 billion, 99,000, WellPoint $61 billion, 37,900; Humana, $36.8 billio, 40,000; Aetna, $33.9 billion, 33.300; Cigna, $22 billion, 31,400 – would lobby furiously against a diminished role for 3^rd party health plans.  Health plans  will not go silent into that good night of no 3rd party administration with price setting.

Oh,  well,  for me the thought of 3^rd parties as the problem and not the solution,  and fee-for service as the solution and not the problem,  has a bewitching, bothered, and bewildering simplicity ring to it. Unfortunately, as H.L. Mencken (1880-1956) observed, “ For every complex problem, there is an answer that is clear, simple, and wrong.” 

Tweet: Physician fee-for-service payments rather than 3rd party payments would be cheaper and more convenient and would lower health costs.