Blog | Friday, February 20, 2015

Health and Human Services announces push to end fee-for-service payments for Medicare


On Jan. 26, 2015, the department of Health and Human Services (HHS) reported plans for a sustained effort to end “fee for service” in medical care. Fee for service is a model of payment we are all familiar with and it works really well when we get our car fixed or our dog groomed or our baby babysat. In these situations we want to pay for what we get, and if we aren't satisfied, we don't come back. If the dog's hair looks terrible a week later, we won't just go back to the same groomer and if any of the other people who do us service perform it in a way that makes us need ever more service we will go to someone else who gets the job done better.

Doctors and other medical service providers are primarily paid “fee for service,” but most patients don't pay them directly and they don't have a good grasp of whether the job of doctoring is being done right, and they don't usually blame it on the doctor if he or she tells them that they need to keep coming back and keep getting things done in order to be healthier. The result is that doctors make more money by providing a service that keeps patients coming back for yet more treatment. A dermatologist is not financially rewarded for diagnosing and removing a potential skin cancer in one visit and calling us on the phone with the results, despite the fact that most of us would prefer that. He will make much more money by diagnosing the spot one day, having us return for a biopsy, then return to have the stitches out and to discuss the results, then again for the excision and then to review the pathology report. If I, as a primary care provider, treat a condition and in so doing make you sicker or more insecure, resulting in more visits, I will be monetarily rewarded. The economics of fee for service make medical care more expensive and more time consuming and don't encourage good health.

Payers, especially Medicare, have worked hard to reduce this tendency to make more money by doing more things, rather than by giving better care. Years ago they began bundling payments for hospital stays, paying by the diagnosis rather than the intensity of the treatment provided. Doctors' fees, though, have been relatively spared, as have costs of individual surgical or diagnostic procedures. With the introduction of the Affordable Care Act, Medicare has been phasing in the practice of not paying for preventable readmissions, which provides a strong incentive for hospitals to keep patients for long enough to ensure they are well enough to go home and stay at home. Some patients are too unstable, either socially or medically, to stay out of hospital long, which makes this strategy far less than perfect.

What HHS would really like, though, is for the health care system to provide appropriate and efficient service without significant oversight. This would cost them less and allow them to focus their attentions on something more interesting, like human services, whatever that entails.

In their Jan. 26 announcement, HHS has characterized the evolution of Medicare payment as a series of 4 steps, or categories. The first is fee for service, which we are transitioning away from, at least sort of. The second category is linking fee for service to quality. We will still be paid according to the volume of work we do, but we will be paid better if patients are made healthier with better efficiency in how we use resources. The practice of not paying for preventable readmissions and not paying for the treatment of preventable complications is an example of this.

Category 3 is paying us a little differently than fee for service while maintaining some of our present structures. The most talked about model is the Accountable Care Organization (ACO) which brings doctors and other service providers together to care for patients in a coordinated manner which will presumably save money, some of which will be given back to the providers as a bonus for doing such a good job.

The other model, which works for smaller organizations, like clinics, is the patient-centered medical home (PCMH). This pays physicians at a higher scale when they keep track of patients better, including having care coordinators for complex or high risk patients and making sure preventive health care is actually done. Both the ACO and the PCMH are total bears to set up, expensive, and require computer systems that function at a really high level and practitioners who know how to use them. The up-front costs are amazingly high and the administrative support required is huge. Because of the massive amount of detailed data gathering and manipulation required to make these things fly, they burn doctors out and make us spend even more time looking at computer screens and less time talking to patients.

Category 4 is good, though. Category 4 is population based payment, and is the system that would reduce the need for HHS oversight. Clinicians or organizations would be paid to provide care to people for, say, a year. The incentive, then, is to make patients as healthy as possible with as little intervention as possible so that we can reduce the intensity of the medical care they need. Providing good, high quality care would mean patients are less likely to need expensive hospital stays or procedures. This system provides an incentive for the dermatologist to take care of the little skin cancer in one visit and encourages me, as a primary care provider, to give you just the care that makes you healthy and confident.

Some people actually like going to lots of doctors appointments and getting lots of tests, and they may not be pleased with population based payment. Care that makes patients a little happier for a lot more money tends to thrive under our present fee for service system, especially with insurance paying the bills. This kind of care would happen less frequently. When better treatments do arise, there will be strong incentives to find ways to make them less expensive. Population based payment's natural tendency to improve value would definitely bring down healthcare costs. There will also be a tendency to stifle astronomically expensive innovation, which has been far more common than low cost innovation in our profit driven system.

HHS says that they hope to have 30% of Medicare patients in category 3 or 4 by 2016 and 50% by 2018.

Changing the way things are paid can be really difficult, however. This category 3, with the ACO and PCMH requirements, is so complex as to be almost impossible and maybe not even a good idea. Paying for population health sounds to physicians a lot like managed care, which we tried years ago and sometimes made us feel like jailers, denying patients care that was expensive but right for them. If patients have adequate input into what is valuable to them (it looks like the medical establishment is moving in that direction) some of those problems may be allayed. But one of the biggest hurdles is that if private insurance continues to pay fee for service, we will continue to have systems set up that push for us to do more rather than better. If we get good at taking care of a patient's needs in one visit rather than several, we may feel penalized if insurance companies other than Medicare now pay us less. HHS has decided to set up Learning and Action Networks to interface with private insurance and other payers to encourage them to adopt population based payments, which would save them money as well.

Population based payment is where I would like to see health care move, but it will be a painful transition, if it works. A huge amount of the money that goes into health care (I've heard figures as high as 50%) is spent on billing and all of the record keeping relating to that. If doctors and hospitals are paid by the number of patients for whom they provide care, we will not be billing insurers for what we do. As lovely as it is to think of a system without billing, those people, doing that work, will lose their jobs. At least most of them will.

As we reduce overdiagnosis and overtreatment, which would be a natural consequence of population based payment, hospitals will lose revenue and some of them will close, unless they can re-tool to help healthy people stay healthy. Radiology technicians and lab technicians will also lose their jobs, because much of what we do in medicine is based on an exaggerated idea of what is needed, shaped partly by generations of being paid fee for service.

It will be particularly awkward to move from the very high administrative burden of category 3 to the simpler and more focused category 4 of population health and population based payment. Bureaucracies like to be large and tend to grow. At some point in this evolution they will need to shrink. Something like 17% of our gross domestic product goes into health care, which is a sizable chunk of our economy. The money we expect to save on more efficient health care is huge and may have a very large positive effect on something. Transitioning health care jobs to ones that are life sustaining rather than ones that react to disease and dysfunction could be beautiful, but it is not at all clear what it will look like on the way to that goal.

Thanks HHS for keeping us focused on a payment system that provides an incentive to keep people healthy, but do take it slowly and please prepare for the consequences.

Janice Boughton, MD, ACP Member, practiced in the Seattle area for four years and in rural Idaho for 17 years before deciding to take a few years off to see more places, learn more about medicine and increase her knowledge base and perspective by practicing hospital and primary care medicine as a locum tenens physician. She lives in Idaho when not traveling. Disturbed by various aspects of the practice of medicine that make no sense and concerned about the cost of providing health care to every American, she blogs at Why is American Health Care So Expensive?, where this post originally appeared.