Is Ending Fee-For-Service The Key to Lowering Health Care Costs?

If Medicare is to have a secure future, one has to move away from fee-for-service medicine, which is all about incentives to spend more and has no incentives to keep patients well.

Howard Dean, MD, “The Affordable Care Act’s Rate Setting Won’t Work,” Wall Street Journal, July 28, 2013

Doctor Howard Dean joins a chorus of policy types  calling for  end of fee-for-service. The chorus includes the National Commission of Payment Reform and a host of medical organizations – The American Medical Association, American College of Physicians, the American College of Physicians, and the American Osteopathic Association. 

All call for some sort of staged process gradually replacing FFS and the present coding system with new value-based payment models.

Dean posits that the Independent Payment Advisory Board (IPAB) a provision  of the health law The job of the IPAB i s to regulate Medicare fees, won’t work,  because price controls have always failed.    Instead, Dean  maintains, only ending FFS will do the job of bringing down costs in concert with implementing the Accountable Cae Act.  

Dean's premise is that doctors charging FFS have an incentive to be greedy, to order unnecessary tests, to do unnecessary procedures, and to avoid preventive care measures.

As I see it, there are four big problems with ending FFS. 

1) Human society and human nature - FFS is how the world does business in every other economic sector, including shelter and food, which are less inflationary than health care.

2) The basic problem with health costs may not be physician fees at all, but a variety of other factors – trial lawyers, insurers, government, drug and device manufacturers, and hospitals. To date, physician hospital employment has raised fees, not lowered them.

3) Introducing preventive measures on a broad scale involves changing American cultural, economic, and patient behaviors and paying doctors more for prevention than treatment, and there is little evidence that these measures have had any signfican effect. 

4) According to surveys of doctors,  the advent of electronic medical records, quality and safety data as the main criteria for physician payment, and bundled and fixed fees so far have done little to bend the health cost curve downward, or to change their practice behavior.

In his John Goodman’s March 28, 2012 Health Alerts blog, Greg Scandlen, an independent health analyst who espouses more consumer choices, argues that fee-for-service is not the basic problem Indeed, he says, if we let FFS rule the economic roost, and ended third party intervention and monitoring, health care would cost less not more.

Scandlen asks: Is fee-for-service the problem? 

“Almost everyone involved in health care will tell you that the greatest problem in our system is that we pay on a fee-for-service basis. Almost everyone is wrong.”

“The logic is obvious – paying a fee for a service encourages providers to get more fees by providing more services. Ergo, we consume too much and spend too much. Ipso facto, getting rid of fee-for-service would result in fewer services and less spending. Case closed.”
 

“Well, maybe not.”
 

“In fact, almost everything we do in the course of our economic lives, we do on a fee-for-service basis. When we go to the movies, get our oil changed, have our roof replaced, buy a computer, get a haircut, hire a baby sitter, buy a steak dinner, get someone to do our taxes or defend us in a suit, we do it on a fee-for-service basis. None of it is particularly inflationary.”
 

“Yes, the providers of these services would like to sell us more units of service. But we have good reason to resist – we don’t want to waste our money on services we don’t need.”
 

“What is unique about health care is not fee-for-service, but third-party payment.

Only in health care is there someone else picking up the tab for our spending.”
 

Scandlen and others, including conservative health economist, John Goodman, believe ending FFS and replacing it with value-based purchasing is not the answer, The answer is incentivizing patients, through health savings accounts with high deductibles, to pay-of-pocket for routine health services and to have physicians compete for the cost-conscious consumer. Goodman says ending fee-for-service would simply drive physicians and loyal patients into concierge practices, free of third parties and government. In thse pratices, patients would pay a fixed fee for convenience, access, and routine preventive services.

Tweet. For every complex problem there is a clear, simple,  answer that is wrong answer. For health costs, that wrong answer is ending FFS.