The end of fee-for-service medicine?

Healthcare wrangling is all around us. Some of the arguing makes sense, much of it doesn’t. What is clear that, if we do nothing, costs are unsustainable even in the medium term, never mind the long term. You can argue about how to cover the uninsured and improve access, but there’s no argument that we’ve simply got to do something to control costs. Most healthcare wonks agree that the principal engine driving costs is how we reimburse doctors and hospitals — if I do more, I get paid more. It makes no difference if what I did was useful to the patient or not.

Insurance companies have gone at this problem with a blunt axe by simply denying payment for things they don’t want to pay for. This makes some sense at the margins — for the big, expensive procedures that invite close scrutiny — but the companies pay for all manner of lesser tests and procedures which, cumulatively, are far more expensive. An additional problem is that the insurance company’s decision about what to pay for and what to deny often appears to be either random or made by somebody who doesn’t know enough to make the proper decision.

A couple of decades ago, health maintenance organizations (HMOs) were supposed to correct a big part of this problem. They paid a fixed amount to the doctor for taking care of the patient for a defined period of time. From the doctor’s perspective it was a little like a lottery: if the patient developed expensive medical needs, the doctor (or hospital) lost money; if the patient stayed well, the doctor made money. It’s pretty easy to see one of the evil consequences that can come from that arrangement — the doctor has a financial incentive to deny care, even needed care.

A couple of interesting recent editorials in the New England Journal of Medicine (here and here) discuss ways of tweaking the idea of global payment for care, rather than the old episode-based fee-for-service. The idea is to reward doctors for making decisions based upon evidence-based medicine and for keeping patients out of the hospital. Both of the proposals essentially abolish fee-for-service. As a practical matter, I think that’s where the future lies.