The COVID-19 pandemic exposed the inherent flaws in fee-for-service medicine. Congress should use healthcare’s current financial crisis to institute far-reaching changes in the reimbursement system.
Over the past several months, lawmakers have spent hundreds of billions of dollars to bail out hospitals and physician practices reeling from the decline in elective surgeries and office visits. The perverse incentives in FFS—do more and you earn more—are reversed when patients are too scared to arrange office visits or facilities are on lockdown.
As Modern Healthcare’s Shelby Livingston reported recently, the hospitals and practices weathering the storm best are those that embraced value-based payment arrangements. Capitated payments still flow when no one shows up. Investments in telehealth and care management outreach give providers in value-based programs the ability to quickly adopt alternative care models.
It will take years to measure the impact of the sharp decline in utilization. Surely some people have died and suffered grievous harm because of delays in cancer care or the postponement of cardiovascular procedures.
But much of the decline will have little impact on health and stand revealed as waste. Experts estimate that share as anywhere from a quarter to a third of all services. As providers end their lockdowns, they may confront a world where millions of patients have permanently altered consumption patterns to prevent their own unnecessary spending.
Fee-for-service not only gives incentives for inappropriate care, it prevents providers from deploying resources in a way that delivers the highest-quality care with the best outcomes. CMS’ belated move to reimburse telehealth visits—an extension of FFS—misses the point. That’s just another code, and a low-paying one at that. It leaves systems chasing higher-paying codes, not delivering the most efficient and effective care.
Capitated payment allows providers to decide what’s best for each patient. For some, that still means going to a high-priced specialist. But for others, especially those on a downward spiral from multiple chronic conditions borne of impoverished living conditions, it will mean a greater use of telehealth, home health aides and social workers.
This flexibility can be achieved in a number of ways. The most promising reforms include bundled payments for broad episodes of care, capitated payments for risk-adjusted patient panels such as is done now in Medicare Advantage and global budgets like those being tried in Maryland.
The government also needs to get out of the price-setting business. It can do that by requiring every provider to set a single price that all payers will be charged for bundled episodes or as a risk-adjusted per capita payment. If coupled with price and quality transparency, all-payer pricing will promote competition and eliminate the complex billing systems that inflate administrative costs.
Ending fee-for-service medicine and variable pricing will require higher Medicare and Medicaid payments to offset lower private insurance rates. That will be a boon for business and a burden for taxpayers, who already pick up more than half of the nation’s healthcare tab.
That’s why payment reform also requires tax reform. In a country that has reached unprecedented levels of wealth and income inequality, that’s long overdue, too.
In its latest report to Congress, the Medicare Payment Advisory Commission called for accelerating the shift to alternative payment models. It castigated Advantage plans and accountable care organizations as “lagging well behind what is possible and desirable.” Yet it also praised FFS as useful in setting benchmarks for those models.
There’s a better way: capped growth rates. Year after year, healthcare spending grows as fast, if not faster, than the rest of the economy. A payment reform bill could peg the growth rate below that level. It was in the Affordable Care Act but abandoned in response to the phony claim it would lead to “death panels.”
A crisis is a terrible thing to waste. It’s time to put payment reform back on the table.