Thursday, July 08, 2010

Change Comes Hard

A part of health care reform in Massachusetts was the creation of a special commission to deal with the cost issue.

Some months ago, that commission declared that the first step would be to reform the payment system by doing away with fee-for-service. Under fee-for-service, providers get paid separately for each item of service. As a result, they get paid more if they do more. Since doctors have a lot to say about what gets done, fee-for-service is thought to be inflationary because they can benefit by ordering services of marginal value, or which may be unnecessary at all, and gives hospitals – which provide many of the services doctors order - an incentive to go along.

The process of replacing fee-for-service seems to have come to a halt, at least for the time being. A front page, above the fold article in the Boston Sunday Globe of July 4 was headlined “Health payment overhaul shelved.”

The first paragraph read as follows:

“The state’s ambitious, first-in-the-nation plan to transform how hospitals and doctors are paid is on hold, at least for this year, largely because of disagreements among key officials, legislators, and providers over how best to control health care spending.”

The only alternative to fee-for-service that anyone can imagine is some sort of “global” payment, most likely including some form of capitation, as is used by HMO’s.

The Globe article identified three issues on which it has been impossible to get agreement.

One is freedom of choice. Legislators want the law to guarantee it, but providers can’t accept it. If a provider organization has to live within a fixed budget set by capitation, it has to have some level of control over its physicians and what they order and thus can’t agree to pay for whatever services are ordered by whatever doctor the patient chooses.

A second is that in order to live within a fixed budget, providers have to be much more tightly organized than they are now. In particular, hospitals and doctors have to come together into unified organizations – something neither is anxious to do.

The third is whether, and to what extent, payment rates will be regulated. Legislators think some regulation is necessary. Providers don’t.

The article talks about the current system being “broken.” That is easy to say. But deciding how to fix it is hard.

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