Changing how we pay for healthcare to promote high-quality care, eliminate waste
The following is an opinion piece by Suzanne Delbanco, executive director of the Catalyst for Payment Reform, Maclaine Lehan, project and research assistant, and Roslyn Murray, senior project and research manager.
Fee-for-service — where insurers pay providers for each covered medical service or procedure a patient receives — has served as the backbone of the U.S. healthcare system's payment model since its implementation. Unfortunately, its presence creates perverse incentives for providers to increase the volume of services, especially specialty or high-tech services, resulting too often in potentially harmful and wasteful care for patients.
An advocate of reforming the fee schedule, Robert Berenson, paraphrased George Bernard Shaw's "The Doctor's Dilemma" in asking why "we should give a surgeon money for taking off your leg, and nothing for keeping it on? You're rewarded for doing stuff, some of which is unnecessary, and not rewarded for not doing stuff."
While a fee-for-service system is not inherently bad, the relative amounts we pay through that system have become distorted. The inflationary nature creates strong incentives for providers to deliver more tests, procedures and services, even if the care is of no marginal benefit to the patient.
In addition, the fee schedule has produced shortages of certain services, including primary care, by offering greater compensation for specialty interventions than the rewards for evaluation and management services, such as office visits. What's more, for some activities that are critical to providing care to patients, no fees exist. For example, prior to 2017, physicians weren't paid for behavioral health management or diagnosing dementia.
Despite these weaknesses, because the fee schedule pays providers for every service they deliver, it inherently promotes access to and utilization of services. For this reason, it offers patients some protection against being undertreated and incents provider productivity.
Alter fee schedule to improve quality, affordability of care
To stabilize the advantages and disadvantages of the fee schedule, there is room for modification to value under-utilized, higher quality services and over-used, lower quality services more appropriately.
Given that private payers have relied on Medicare's relative value scale to set fees, to improve the accuracy of fee schedules and remove distortions, payers could actively participate in the fee-setting process or alter their own relative values to pay more for needed higher quality services and less for overused, low-quality services.
Stop paying for harmful care
For example, rather than paying physicians for services that are harmful to patients, one option is to stop paying them. Medicare's Nonpayment for Hospital-Acquired Conditions Initiative, implemented in 2008, denied payment for eight complications of hospital care, known as "never events" — adverse events that should never happen. Medicare saw some success from the initiative — for example, an 11% reduction in central line-associated blood stream infections and a 10% reduction in catheter-associated urinary tract infections. However, overall, the nonpayment policy had little effect on inpatient falls and hospital-acquired pressure ulcers.
South Carolina Medicaid’s Birth Outcomes Initiative (SC BOI) instituted a non-payment policy for early elective deliveries (EEDs). The policy began in 2013, when South Carolina stopped paying hospitals and doctors for non-medically necessary EEDs, after two years of quality improvement activities.
The initiative reduced EEDs by 51%, and elective inductions by 55%. In partnership with all 45 South Carolina birth hospitals, SC BOI realized savings of $6,076,000. As of 2016, the program's fifth year in operation, 76% of all South Carolina birthing hospitals had a 0% rate of non-medically necessary EEDs.
Texas similarly launched a Healthy Babies Initiative in 2011 within the Texas Medicaid program, denying payment to providers for EEDs prior to 39 weeks. EEDs fell by as much as 14% in Texas after this payment policy change, which led to gains of almost five days in gestational age and six ounces in birthweight among births affected by the policy.
Before the program, EEDs among singleton Medicaid-financed births was 10.63%. Following Texas' reform, there was a 1.11-1.45 percentage point decrease in the incidence of EEDs.
In contrast to implementing policies to lower or stop payment for harmful services, payers have implemented programs to increase payment for services like primary care and behavioral healthcare, which the fee schedule significantly undervalues. Consistent undervaluation has led to fewer providers entering these professions, compromising the primary care physician pipeline for example, and to less of these services being performed.
In 2017, Virginia's Medicaid program increased payment rates for behavioral health care through its Addition and Recovery Treatment Services (ARTS) program. The ARTS program expands access to a continuum of addiction treatment services available to all enrolled Medicaid members and Family Access to Medical Insurance Security members, Virginia's program for children and pregnant women.
While it is still early in the program, independent evaluations after five months suggest there have been positive results. Importantly, there have been significant increases in the supply of addiction treatment providers accessible to Medicaid members. With this expanded access, nearly 14,000 Medicaid members utilized an addiction-related service during the first five months, a 40% increase in utilization from the year prior.
Treatment rates for Medicaid members with substance use or opioid disorders reportedly increased by more than 50%, with related hospital emergency department use decreasing by 31%. This reduced utilization translated to a decrease in total spending on emergency department visits related to substance use by 14%, or $16 million in the first 5 months.
Reduce fees for overvalued services
While the fee schedule, and thus fee-for-service, is intrinsically inflationary, there is some evidence that modifying the fee schedule to value healthcare services appropriately can lead to better value, e.g., not paying or lowering payment for services with no marginal benefit to patients and adding or increasing payment for beneficial services.
At least one national commercial payer is examining where it might create new codes for services that have historically not had associated fees like care coordination, and where it might reduce the fees for overvalued services where there has been resulting overuse.
Alternative payment methods not the holy grail
Some might argue that we should not focus on the fee schedule when we could direct our attention to alternative payment methods. However, most alternative payment methods in use (e.g. pay for performance, shared savings and shared risk) today add incentives on top of a fee-for-service foundation. Thus, if we ignore the inherent flaws in the fee schedule, we will allow distortions to continue in the implementation of most alternative payment arrangements.
Exceptions might include prospective bundled payment and different forms of capitation, though the price of a bundle or a capitation amount might be based on estimates using the fee schedule. These counterproductive incentives will continue to shape provider behavior and care delivery until we modify the fee schedule to re-value healthcare services so that patients ultimately receive a higher-value, better mix of services.
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