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Not With a Bang But a Whimper: Did Fee-For-Service Medicine Just Die?

October 22, 2009
In The News

House leadership and a group of Representatives from low-cost states made news with a deal Thursday that will deliver their support for a public option which would pay providers according to rates based on Medicare. In return, the Representatives will get a study to start fixing low reimbursement rates in low-cost areas of the country.

Both aspects of the deal -- support for the public option, and shifting Medicare reimbursements in low-cost areas -- are important in today's politics. The grouping of Representatives, calling themselves the Quality Care Coalition, and led by Rep. Bruce Braley (D-IA), Rep. Jay Inslee (D-WA), Rep. Ron Kind (D-WI), and Rep. Betty McCollum (D-MN), could provide the votes that Speaker Nancy Pelosi needs to pass her aggressive version of the public option.

But years from now, a little-noticed detail of that agreement could potentially overshadow any other story from this year's tumultuous health care debate.

That's because the fine print of today's agreement calls for a second study -- this one on transforming our entire health system, private and public, to one that rewards quality and value. This just might become the game-changing move on cost containment America's health care system desperately needs.

To understand why you must first understand that many of America's health care cost and quality problems start with the payment system that Medicare and many private health insurance companies use. Under this system, known as "fee-for-service," health care providers receive payment for each visit with a patient, each test ordered, and each procedure performed. Payment is based solely on the quantity and complexity of care that the patient receives, regardless of how effective that care actually is or how well it is delivered. This payment structure penalizes those providers or hospitals who focus on disease prevention and treatment protocols which identify medical problems before they become acute. At the same time, it rewards hospitals and doctors who rely on a higher complexity and quantity of tests and treatments, whether they make the patient healthier or not.

Under this deal, the respected, apolitical Institute of Medicine would be charged with charting a new path to "the efficient delivery of high quality, evidence-based, patient centered care."
If the IOM reaches the same conclusions as most health policy experts, and recommends a real and permanent transition away from fee-for-service, the savings could be vast. A recent roundtable of experts sponsored by IOM identified $800 billion a year in wasted health spending by the private and public sectors.

Lest you suspect that this might be the typical, run-of-the-mill Congressional study, generating lots of chin-stroking but no real action, yesterday's agreement gives this particular IOM study teeth. The Secretary of HHS would be bound to implement the IOM's. Only a joint resolution of disapproval passed by both Houses of Congress could stop it. And such a resolution would be subject to Presidential veto.

Now as promising as this new proposal is, we must recognize that the House and Senate health bills already take some steps to transform our system. All the bills would study what treatments work best and test innovative models of care such as medical homes, accountable care organizations, and bundled payment in Medicare and Medicaid.

The recent Senate Finance bill goes further by paying bonuses to hospitals and providers for high quality care and creating a Medicare Commission with the authority to make payment changes. Each of these are worthy provisions that deserve inclusion in any final legislation...especially when can't know for certain that IOM's recommendations will tackle fee-for service or whether Congress will override them.

But this IOM study and the unique process for implementing its recommendations could potentially do more than any other policy to advance the Obama administration's goal of reducing costs by scaling up high-quality, low cost approaches to care

For decades, special interests have blocked moves to squeeze the trillions of waste generated by our outmoded fee for service system. But if future generations do achieve higher quality health care at lower costs, they may well look back at yesterday's agreement as a critical step to making that happen.