Monday, June 08, 2015

FFS Begone

There seems to be widespread agreement in health care that fee-for-service (FFS) has to go.

In the usual economic transaction there are two parties – buyer and seller.  Each has a financial interest in the deal.  Healthcare is different.  There, transactions commonly involve four parties – buyer, seller, consumer and payer, with the physician being the buyer, the pharmacy, lab, hospital, etc. being the seller, the patient being the consumer and the insurance company being the payer.   Only the seller and the payer are financially involved and historically the payer has had only an arms-length relationship with the buyer.

This unique arrangement is considered to increase costs because the incentives to order drugs, diagnostic tests and even treatments are stronger than the incentives to economize. 

 Saying that FFS has to go raises the question of what is to replace it.  So far, the main alternative that has been imagined involves some kind of “bundled” payment – either a flat sum for a defined treatment like hip replacement or a fixed annual amount per patient or per family – what in the managed care era was called capitation.  The other possibility is the payment of a bonus for achieving a cost level at or below target.

While FFS creates incentives to provide more service than a patient needs, bundled payments and bonuses do the opposite.  In those cases, a provider performing a hip replacement can make money by installing a cheaper artificial joint and by skimping on postoperative rehab.

That concern is being expressed these days in Massachusetts where, according to an article in the May 26 issue of the Boston Globe (Amendment incites a Medicaid fight), Steward Health Care System, a for-profit hospital chain, is promoting legislation that would allow it to be paid for Medicaid patients on a bundled (capitation) basis.  Steward was created and is owned by venture capitalists and a common view is that its goal is to become profitable enough to be sold at a profit. 

The proposal is being questioned by consumer advocates and insurers.  The stated objection is that the provider (Steward in this case) would be allowed to act as an insurance company without being regulated as such or being required to maintain reserves.  But I suspect the concern is that providers like Seward will withhold needed care in order to increase profits.

FFS may be an undesirable payment system but the alternatives have their issues, too.


This page is powered by Blogger. Isn't yours?

FREE counter and Web statistics from sitetracker.com