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.
