Reducing costs requires end to fee-for-service
The healthcare industry faces growing consternation that employment of physicians and consolidations of hospitals are increasing the power of healthcare providers to raise their prices.
Many people have called for stricter antitrust enforcement and some have suggested regulating prices. Before adding more regulations to an already over-regulated industry, we should fix the existing policies that are causing the problems.
Problem No. 1: The myth that “big
ger is better.” Government and private health insurance plans have imposed many accreditation requirements and mandates for measurement and technology that do little to reduce costs or improve quality, while making it difficult for independent physicians and small hospitals to stay afloat. In other industries, we encourage small businesses, but many healthcare policies do exactly the opposite.
Much of this derives from a widespread but mistaken belief that coordinated services for patients can be delivered only by large “integrated” organizations. Yet we have many examples of small physician practices and small hospitals working together to provide high-quality, efficient care while remaining independent. There’s no evidence that large delivery systems provide better quality or lower-cost care than independent providers working together can offer.
Instead of encouraging consolidation and trying to control the resulting monopolies, a better approach is eliminating requirements that force consolidation and start paying providers based on the quality and cost of their care.
Problem No. 2: A broken healthcare
payment system. The biggest barrier to better healthcare is that physicians and hospitals aren’t paid for what we really want them to do—keep us healthy and deliver efficient, high-quality care when we’re sick. For example, Medicare and health plans won’t pay primary-care providers to answer a phone call from a patient about a health problem, yet they’ll pay if that patient goes to the emergency room. Specialists aren’t paid for the time they spend coordinating care. Doctors aren’t paid at all when they keep their patients well.
We want hospitals to achieve good outcomes, but hospitals are paid less when patients have fewer complications, infections and readmissions. We want hospitals to have emergency rooms, cardiac catheterization labs, and surgical suites ready to go if we have an injury or heart attack, but we don’t pay hospitals to be there when we need them; we pay them only when they perform procedures. Forcing hospitals to treat enough nonemergency patients to generate the revenue needed to cover emergency services can easily lead to overutilization and unnecessary spending.
There are better ways to pay for healthcare that solve these problems. Bundled payments give physicians and hospitals the flexibility to redesign care in ways that reduce costs without rationing. “Warrantied” payments pay providers more for quality care but don’t pay more for treating preventable complications. Risk-adjusted global payments encourage physicians and hospitals to keep patients well while still providing adequate resources to treat patients quickly when they’re sick.
Unfortunately, most payers aren’t using these types of payment systems.
Instead, they’re using “shared savings” and “value-based purchasing” programs that merely add a small bonus or penalty on top of the existing, broken fee-for-service system. That’s like trying to treat cancer with a Band-Aid.
Problem No. 3: Obsession with lower prices rather than lower spend
ing. Instead of creating a better payment system, Medicare simply cuts payments and private insurers demand bigger discounts in the existing fee-forservice system. But if insurers won’t pay for care coordination and other services we really need, and if they cut fees for what providers do deliver, they simply force providers to deliver unnecessary services, encourage them to consolidate to better fight payment cuts, or force them out of business. The result isn’t better care or lower costs, but fewer choices for patients.
The best way to reduce healthcare spending isn’t fee cuts, price regulation or payer-defined narrow provider networks. It’s competition by providers for patients based on cost and quality. However, it’s impossible for patients to compare prices or judge quality on the over 7,000 CPT codes and more than 700 DRGs in the existing fee-for-service system. That’s the other reason why changing the payment system is so important. Bundled, warrantied and global payments enable patients to choose teams of physicians and hospitals that offer the best combination of price and outcomes for the specific health problems those patients are facing.
Instead of purchasers and providers arming themselves for an ever-escalating battle over prices, they should work collaboratively to completely redesign healthcare payment and delivery systems. Patients will get better-quality care, purchasers will spend less, and providers will be more financially viable.
Harold D. Miller is president and CEO of the notfor-profit Center for Healthcare Quality and Payment Reform.