Is Fee-for-Service the Enemy of Delivery System Improvement?
As the health care reform debate heats up in advance of the Presidential election, a chorus of health care experts - from the Institute of Medicine to the Dartmouth Atlas Project, from MedPAC to the leaders of prominent integrated delivery system such as Kaiser Permanente and Mayo – continue to remind us that there is more to health reform than just access to care. We accomplish little by improving access to a delivery system that is uncoordinated, inefficient, inflationary, and prone to both under- and over-treatment. As recently noted by Dr. Jack Cochran, Executive Director of The Permanente Federation, in testimony before the Senate Finance Committee Health Summit, “Health reform is not just about expanding access. Equally important are the issues of quality and efficiency of the health care delivery system. As a nation, we could be doing so much better.”
But what is a policymaker to do when faced with solid evidence that the health care delivery system is not organized to produce efficient, high-quality care? One obvious answer is to re-examine the payment system. In healthcare, as in everything else in life, we get what we pay for. If we pay for piecework, as we do under the fee-for-service payment system, we get piecework.
In his Congressional testimony, Cochran noted, “The traditional fee-for-service (FFS) system discourages the organized, integrated care that is the hallmark of [organized delivery] systems.” He further elaborated, “Under FFS, physicians and hospitals are rewarded for taking actions – doing procedures, prescribing drugs, performing tests, etc. – regardless of whether the best evidence calls for such action. FFS may also stand in the way of cooperation and collaboration across the delivery system, as each provider has an economic interest in providing more services for the patient rather than in collectively determining how much and what mix of care is ideal.”
Fee-for-service creates little incentive for cooperation across providers or for investment in infrastructure (information systems, research, comparative effectiveness analysis, etc.) that is necessary for improved care. Instead, FFS gives us:
- A focus on individual sick patients, rather than on a population’s health needs;
- An inability to match service capacity to population needs on a broad scale;
- Insufficient resources to implement information systems across the continuum of care;
- A lack of incentives and organizational structures to align governance, management, physicians, and other caregivers in support of achieving shared objectives; and
- A lack of systems for continuous learning.
In contrast, the Institute of Medicine’s Crossing the Quality Chasm painted a picture of an ideal health care delivery system characterized by:
- Evidenced-based care processes;
- Effective uses of information technology;
- Knowledge and skills management;
- Development of effective teams;
- Coordination of care across patient conditions, services, and settings over time; and,
- Use of performance and outcomes measurement for continuous quality improvement and accountability.
So, how do we get there from here? Quite simply – we have to pay for the things we want. “First, payments should reward higher quality, not higher quantity,” Cochran said. He added that “the unit of payment should be large enough to encourage providers to seek efficient combinations of resources. A bundled payment for a complete episode of care, for example, might encourage coordination of inpatient and post-acute care.”
But do we need to throw FFS out entirely? Certainly, capitation, coupled with quality measurement and reporting is a fairly obvious antidote to the ills of FFS. But capitation has its detractors too. Fee-for-service has been around for a long time, and it supporters are strong. It would take considerable political will to change it. So, can we work with it? The answer is that we can and we must. There are a number of promising payment schemes being tested or proposed that represent a middle ground between full capitation and pure FFS. These include payments to primary care providers for acting as a “medical home”; bundled payment experiments as proposed by the Prometheus Payment project; a “guarantee” for surgeries that covers any and all complications, as modeled by Geisinger Health System; various pay-for-performance schemes, etc. These hybrid schemes may be able to maintain a foothold in FFS but achieve many of the quality and cost advantages of capitation.
As Einstein said, the definition of “insanity” is doing the same thing over and over again and expecting different results. It’s time for a change. Call it what you will – pay-for-performance, bundling, guarantees, value-based purchasing, or even capitation – it is hard to argue that we will make any true progress in health reform in this country until we fix the broken payment system.
- Laura Tollen, MPH, Senior Policy Consultant,
KP IHP
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