Editor’s note: This commentary is by Robert Ronald Holland, who is a physician and policy analyst who lives in Irasburg. He has no political party affiliation.
[A] dominant critique of the health care system is that its poor outcomes and high costs stem from a misalignment of economic incentives. The belief is that fee-for-service buys increments of care, therefore physicians sell more services than are necessary to increase their income. In the commentary by Carrie Wulfman, “OneCare Vermont will be successful,” Carrie states that using a “valued-based system” in place of fee-for-service will increase both quality and affordability.
History of fee-for-service
To gain the support of the American Medical Association for the passage of the Medicare and Medicaid programs, Congress agreed to the “usual and customary” fee-for-service billing. Physician services were categorized as either cognitive (annual checkup) or procedural (colonoscopy). Billing for cognitive services was simple. The Health Care Financing Agency published seven pages with clinical examples ranging from brief to comprehensive consultations. Physicians picked the example that best fit their consultation and submitted its billing code to HCFA for payment.
In the 1980s with persistent increasing health costs, Congress gave HCFA the authority to design its own billing system. In 1992 the HCFA implemented a complex fee-for-service method that required 44 pages of explanation for cognitive services.
In 1998 the editors of the New England Journal of Medicine, Jerome Kassierer, M.D., and Marcia Angell, M.D., published an editorial entitled “Fatally Flawed” (NEJM 339: 1697-1698), describing HCFA’s billing method. The method is “stupefyingly complicated,” “worse than useless,” and “irrelevant to actual patient care.” It is “wasteful of time and resources” and “distorts the legitimate uses of the medical record.” They recognized that the complexity of the method made it liable to “gaming.”
What is ‘service’?
The initial step in designing a “fee-for-service” billing method is defining “service.” The HCFA did not define “service” but said that its value was proportional to the categories of information that the health care provider records in the medical record. Whether the information is relevant to the patient’s care is not considered. The methodology encourages tests and X-rays. If a provider orders a test, costs increase for the test and increase further for the cognition to interpret the test. The appropriateness of ordering the test is not evaluated.
Adverse effects of CMS’s fee-for-service
Arnold Relman, M.D., editor-in-chief of the NEJM (1977-1991), suffered a cervical spine fracture in 2013. After his recovery he obtained and reviewed all his medical records. He wrote about his patient experience in The New York Review of Books, “On Breaking One’s Neck.”
“I was often seen by an attending physician and an associate … But neither physician seemed to be actually in-charge of my care, or spent much time at my bedside beyond what was required for a cursory physical exam. They did, however, leave lengthy notes in the computerized record, full of repetitious boiler plate language and lab data, but lacking in coherent descriptions of my medical progress, or my complaints and state of mind.”
The computerized records that Dr. Relman describes are not structured to aid clinical decision-making or foster clinical research – they are designed to facilitate billing. It is “street knowledge” in health care, that computerized records pay for them self in a few years through upcoding and then keep on giving.
Inspector General analysis
In 2011, 19 years after initiation of HCFA’s billing method, the Office of Inspector General reviewed the distribution of payments for cognitive services from 2001-2010 for Medicare patients. They found that all lowly reimbursed codes had decreased, and all highly reimbursed codes had increased across all physicians adding 16 percent ($5.2 billion) to cognitive service reimbursement for 2010. Another 21 percent of 2010 claims were overpaid $6.7 billion. Sixty-one percent of bills were either incorrectly coded or lacked documentation. All payers use the CMS method. These findings can be generalized to the entire health care system.
Accountable care organizations replace ‘fee-for-service’ with ‘value-based methods’
Believing that fee-for-service was driving health care costs, the Center for Medicare Services designed a policy initiative – ACOs – that explicitly removed fee-for-service from the billing equation, replacing it with “value-based methods.” Of the nearly 1,000 operating ACOs, more than half failed to reduce health care spending at all over a three-year period (NEJM 2017; 377: 1809-11). Those that did reduce costs did so only modestly on the order of 1-2 percent. On average, based upon nearly 3,000 ACO-years of experience, there has been no net reduction in health care costs. (NEJM 2017; 377: 285-92).
Based solely upon the 2010 Inspector General report, CMS’s fee-for-service reimbursement is an unqualified failure. As stated by editors of the NEJM in 1998, it was poorly conceived, wasteful of time and resources and liable to gaming. As documented by the IG, it is poorly administered.
However, more analysis is required to conclude that fee-for-service is a major cause of the sick health care system. Other countries with lower costs and superior outcomes use fee-for-service. While some ACOs have demonstrated modest increase in quality and reductions in costs, overall, based upon more than 15 million patient-years of experience with ACOs, the cost increases exceed reductions. ACOs are not the magic bullet that policymakers want. When the diagnosis is wrong, the treatment fails.
Value in medicine is an elusive concept. CMS hopes to derive a composite performance score for each physician and influence the physician’s performance through economic incentives based upon the score. It is unlikely that health care administrators have the appropriate measures to accurately, meaningfully and comprehensively evaluate the quality of physicians’ care and reflect such a judgement in a single score.
Donald Berwick, MD, prior administrator for CMS, suggests an alternative approach defined by nine features:
• stop excessive measurement
• abandon complex financial incentives and use a sensible payment system
• decrease focus on finance and embrace quality
• avoid physician dominance but foster professionalism
• recommit to improvement science
• embrace transparency
• embrace civility
• serve the patient
• reject greed
The for-profit corporate structure of OneCare Vermont Accountable Care Organization LLC conflicts with many of these values.
