Over the weekend we had houseguests—he’s a prominent California healthcare attorney, she’s a medical ethicist. They’re both readers albeit silent ones of this blog and as you might expect over the course of the weekend the conversation turned from time to time to the state of the healthcare system, both from the vantage point of consumers—we’re all aging and our contact with the system as consumers is increasing—and of observers. He and I disagree over the degree to which over-utilization figures in increasing healthcare costs. Since I am familially culturally averse to over-use of healthcare, the idea is foreign to me. Our friend points out that if all patients were like me over-utilization wouldn’t be an issue.
However, we agree that if the manifest problems with our healthcare system are to be addressed the fee for services paradigm in healthcare services compensation has got to go. That’s why this observation by Phillip Longman in the Washington Monthly caught my attention:
The largest single reason for this extraordinary volume of wasteful and often dangerous overtreatment is Medicare’s use of the “fee-for-service†method of compensating health care providers that dominates U.S. medicine, under which doctors and hospitals are rewarded according to how many procedures and tests they perform. To fix this, the federal government should do the following: announce a day certain and near when Medicare will be out of the business of subsidizing profitdriven, fee-for-service medicine.
Going forward, Medicare should instead contract exclusively with health care providers like the Mayo Clinic, Kaiser Permanente, the Cleveland Clinic, Intermountain Health Care, the Geisinger Health System, or even the Veterans Health Administration. All these are nonprofit, mission-driven, managed care organizations widely heralded by health care experts for their combination of cost-effectiveness and high quality, including cutting-edge use of electronic medical records, adherence to protocols of care based on science, and avoidance of medical errors. Because doctors working at these institutions are not compensated on a fee-for-service basis, they are neither rewarded for performing unnecessary tests and surgeries nor penalized financially for keeping their patients well. And unlike for-profit HMOs, these institutions are not pressured by shareholders to maximize earnings through withholding appropriate care.
I think that we made a strategic error 45 years ago when the Medicare plan was first implemented. Rather than using private insurance as a model we should have used the VA. However, since I recall the debates at the time, I’m well aware of why no such plan was adopted: the medical profession mounted an active, vehement campaign against it. I believe we’re seeing the consequences of that decision now.
As I see it the most serious problems with our healthcare system are:
- Medicare costs are rising at an unaffordable rate.
- Medicaid is bankrupting the states.
- Too many communities are under-served.
- Individual healthcare insurance is simply unattainable for too many people and its costs can be ruinous.
I don’t think that any of those issues can be addressed without a radical change to our present system, far more radical than the ACA (called “ObamaCare”) and those who benefit by the present system will fight radical changes to their last breaths.
As for Mr. Longman’s proposal, I wonder how many Americans don’t have institutions like those he’s named available to them? My guess is many and such institutions are not started overnight and, importantly, don’t develop the cultures and repute these institutions have overnight. The simplest strategy for those who’d oppose a transition to something over than fee for service is do nothing. Will elected officials stick to their guns and allow so many voters to go without healthcare? He must be thinking of some other elected officials.
Does this mean that the Morton’s waiter has to offer me a set price for steak, or steak and lobster, or steak with mushrooms and bernaise, and shrimp…….and can’t charge me for coffee, cheesecake, and, heh, Glenmorangie Lasanta, after dinner?
Cool.
I think your analogy is a bit flawed. Rather than dissect it suffice it to say that some institutions appear to be controlling costs better than others and we might want to try emulating what they’re doing.
There are other alternatives. For example, we would accept different standards of care, something we’ve been societally reluctant to do, at least nominally. For some there could be Morton’s; for others Denny’s.
Or we could remove the requirement that all food be served in licensed establishments, again something we’ve been reluctant to do.
Well, then there’s the obvious point that not everyone can eat at Morton’s. Some of us will be stuck at Taco Bell.
“Some of us will be stuck at Taco Bell.”
And some at Typhoid Mary’s.
I have assumed for quite a while now that we will eventually move away from FFS. It would help a lot, I believe, with the issue of utilization. I have written a few papers for our group and our hospital along these lines. The alternatives have their own issues, and the transition will be rough, but I think it has a good shot of reducing care costs while retaining quality.
Steve
It of course was a tongue in cheek remark. But I think at the core of the issue is the notion that unwarranted medical services are “marketed” to generate fees. Perhaps the part of the analogy that fits is the waiter hawking for post dinner coffee or desert.
Food is one thing. Its disappointing to think that health care professionals would prescibe an unwarranted course of care.
I should describe my daughter’s $4000 dollar tummy ache sometime (which “only” cost us $123). Yay FFS.
Andy –
My longstanding argument has been that the third party payer system separates the consumer from the decison, with inevitable results.
You actually should describe the $4000 tummy ache. How does that happen? And if you were subject to the full costs what would have been your course of action, and the medical outcome?
I’m going to make a very simple point.
It is not fee-f0r-service that is the problem. Not one tiny little itsy bit. Anyone who thinks otherwise is being foolish.
You have fee-for-service at your car mechanic, how come we don’t have a automotive repair problem? You have fee-for-service with whomever cuts your hair, how come we don’t have a hair styling problem with hair cutting costs spiraling out of control.
The answer is simple, fee-for-service doesn’t work when Bob gets the the service, Joe pays the fee and Mary gets the fee and provides the service. This is what Arnold Kling calls “passing the check”. Imagine you sit down with 20 people for dinner and the bill be paid by first passing it around from person to person and then it is randomly stopped and the last person holding the check has to pay.
As a homework exercise figure out how people are going to behave when ordering (which is done prior to figuring out who pays the bill).
The solution is simple and elegant to the fee-for-service problem:
Bob gets the service and pays the fee, Mary provides the service and gets the fee.