THCB

Is Fee-for-Service Really the Problem?

The authors’ recent book, Medicine in Denial, briefly mentions the subject matter of this post — the effects of fee-for-service payment.  This post examines the issue in more detail, because of its importance to health care reform.

The medical practice reforms contemplated by Medicine in Denial have large implications for a host of policy issues. As an example, consider the issue of fee-for-service payment of providers. The health policy community has arrived at a virtual consensus that fee-for-service is a root cause of excessive cost growth in health care. Payment for each medical service rendered seems to involve an unavoidable conflict of interest in physicians: their expertise gives them authority to increase their own payment by deciding on the need for their own services. This conflict of interest has driven countless attempts at health care regulation. These attempts usually involve some combination of price controls, manipulation of incentives, and third party micromanagement of medical decision making. For decades these attempts have proven to be hopelessly complex, illegitimate in the eyes of patients and providers, often medically harmful, and economically ineffective.

Because regulating the conflict of interest has proven to be so difficult, the health policy consensus is now that the only escape from the conflict is to avoid fee-for-service payment. But this consensus misunderstands the conflict’s origin. The conflict of interest arises not from fee-for-service payment but from physicians’ monopolistic authority over two distinct services: deciding what medical procedures are needed and executing the procedures they select. The conflict does not disappear when payment switches from fee-for-service to its opposite–-capitation. Indeed, then the conflict becomes even more acute–-physicians have an incentive to withhold their expertise from costly patients who need it the most.

The conflict of interest can be avoided only by disaggregating physician authority. Whoever executes medical procedures must not be the party who decides what procedures are needed. Who should make those decisions? Here we need to distinguish between two situations: (1) situations of relative certainty, where assembling the right information reveals only one reasonable option, the option that would be selected regardless of who makes the decision, and (2) situations of genuine uncertainty, where assembling the right information reveals several medically reasonable options and the choice among them is inherently personal to the patient. In neither situation should physicians have decision making authority. The situation of greatest risk (medical and economic) is the second one, and there decision making authority should rest in the informed patient.

That shift to patient-driven decisions would replace the conflict of interest with heightened practitioner incentives to improve pricing and quality from the patient’s perspective. Improving either one enhances the practitioner’s competitive position in a fee-for-service environment driven by patient decisions.

That environment should involve open competition among practitioners, coupled with mandating high standards of performance within a safe and effective system of care. Innovative practitioners could compete at exceeding the mandated standards of quality but could not gain a pricing advantage by falling short of those standards. Within that constraint, most providers would compete on non-medical factors such as price, location, convenience, amenities, cultural compatibility and personal rapport. A marketplace of this kind might turn out to have huge benefits, tangible and intangible. The tangible benefits would be not only lower prices but also higher medical quality and thus cost avoidance. Informed patients would drive greater demand for high value services and lesser demand for low value services, while avoiding the medical harm and costly responses so often triggered by low value services.

To reiterate, the essential change is to break the system’s dependence on the monopolistic authority of physician practitioners. This becomes feasible with the infrastructure and institutions described by Medicine in Denial. The book describes a system of care where practitioners would be credentialed based on their demonstrated competence at performing discrete medical procedures, where their personal knowledge would not be a basis for credentialing, where patients and practitioners would jointly use tools designed to elicit objective knowledge individually relevant to patient problems, where knowledge tools would not be contaminated with vendor marketing, where patients would decide what medical procedures meet their personal needs, where patients could safely choose among highly competent practitioners who offer the specific services needed, where other practitioners could specialize in helping patients navigate the decision making process. In such a system of care, fee-for-service payment would reward the most productive practitioners, those who deliver the most in terms of money, time, and other patient needs.

The point of this discussion is not to advocate fee-for-service payment. The point is simply that the pros and cons of fee-for-service depend on the environment in which it occurs. John Goodman points out that in most market environments fee-for-service coexists with other payment approaches. On his view, third party involvement seriously distorts fee-for-service payment in the health care environment. He would minimize third party payment by shifting payment authority from third parties to patients. Our point is that this shift in payment authority needs to be aligned with a similar shift of medical decision making authority, which in turn depends on fundamental medical practice reform (see especially part II.B.2.d of Medicine in DeniaI). In both contexts, medical and financial, the health care system must equip patients with the information tools and funding needed for them to safely assume the risks and burdens involved in health care decision making. The information and funding they need can be placed in their hands, in a manner that offers them reasonable trade-offs but shelters them from the trade-offs now faced by the uninsured and underinsured.

The reforms presented by Medicine in Denial would do more than change the dynamics of fee-for-service payment. The entire marketplace for health professional services would be transformed. The current severe shortages in the primary care workforce might well disappear. No longer would practitioners enter an out-of-control, demoralizing, non-system of “care”; no longer would they be deprived of the emotional, intellectual and financial rewards that caregiving should naturally produce. The health professions could attract countless individuals with the interpersonal skills and technical aptitudes needed to become compassionate and skilful practitioners. They could freely enter into competition for patients by acquiring high levels of skill in clearly defined roles. Costly, prolonged, knowledge-based education would no longer block entry into medical practice. Individual practitioners would be free to find niches that offer the best fit between their own abilities and patient needs. They would be free to expand their expertise as their abilities and drive permit. They would be free to innovate in delivery of services. Virtuoso performers would be rewarded in money and status without regard to formal education. Upward mobility would then become part of the health professions, unlike the status quo, where few upward career paths exist for non-physician practitioners.

Freed from physician hegemony over medical practice, institutional providers could organize highly efficient teams of skilled practitioners. Underserved communities would be similarly free to develop practitioners from their own populations. And more innovation in health care delivery would occur as more providers and new organizations have greater opportunity to pursue innovation and its rewards.

Physicians may find such a marketplace deeply threatening. But they are also threatened by the status quo. Their monopolistic credentials burden them with unaffordable education debts, incomprehensible third party demands, unattainable standards of care, unpredictable litigation exposure, and unbearable risks of error for their own patients.

Larry Weed is a physician who originated influential standards for organizing medical records more than 50 years ago. His son Lincoln practiced employee benefits law in Washington, D.C. for 26 years and now specializes in health privacy at a consulting firm.

Livongo’s Post Ad Banner 728*90

21 replies »

  1. Living in Vegas, I found this page by following a link from Linkedin. Very Glad I did. Nice topic, and great site. Keep up the Wonderful Work.

  2. As a number of studies have shown, shared decision making between physicians and patients can improve outcomes in some areas of medicine, especially with regard to elective procedures. There’s also evidence that when consumers can obtain comparative information about quality of physician groups, they tend to gravitate toward physicians in higher-performing groups. But the idea of having patients make all medical decisions is patently ridiculous. Not only do 90 million plus Americans have low health literacy, but even those who are better educated have a hard time understanding complex medical concepts. In addition, placing these decisions in the hands of patients will not eliminate the incentive of physicians to do more in order to make more; they’ll simply persuade patients that they need this test or that procedure.

    What is needed is better communication and collaboration between patients and their doctors, and medical homes that can guide patients through the healthcare system. And the only way to force practitioners to move in this direction (just look at the tiny percentage of doctors currently certified as medical homes) is to give them financial risk. Of course, that must be coupled with quality measures to prevent them from cutting corners, as the Medicare shared savings program will require. But only when providers understand that they are stewards of scarce healthcare resources and have to consider the financial consequences of their decisions will health costs stop growing at their current insane rate.

  3. Excellent discussion here, appreciate the response. A few additional thoughts:

    1. The control mechanism proposed akin to airline industry makes sense however once again we are left to defining ‘peers’. Theoretically the certification, recertification process is embedded in the Board certification process. I would not propose to know the details of radiation therapy but am happy to delegate decisions about behavior/practice to certified board. The perception is that Boards are too protective, though would be interested to know actual numbers for those not recertified. The mandatory inclusion of maintenance of certification, case review and outcomes measures is now present in many boards as of recent,perhaps will help.
    2. Really you are just defining ‘bad’ doctors! As in any industry, there are those ‘better’ than others, and the question is how to police this. I can provide multiple stories of patients I see each week with incorrect and expensive referrals when a simple exam and attention to details from even the most basic trained provider (nurse, MD, PA) could have avoided. Right or wrong, if we ‘cull’-out the weakest providers we are left with a limited resource of ‘the best’ which tends to support monopolistic behavior.
    3. Agree that the effectiveness of these controls is limited, but more and more ‘questionable’ treatments are controlled by payers (ie unlikely to pay for spinal fusion without appropriate conservative management).

  4. Peter1 states that we are offering the “same old consumer-directed ‘solution’.” On the contrary, Medicine in Denial (see part II.B.2.d) argues that what now passes for consumer-directed care is little more than consumer-directed spending. The book describes the necessary infrastructure for a truly consusmer-directed system of individualized care. This is a system that patient/consumers themselves would navigate, using medical experts as needed, very much as they navigate the transportation system.

  5. Let’s begin with SJM’s concluding point — that we “seem to be trying to force an ideal economic model on a system that has repeatedly been identified as non-Pareto imperfect.” On the contrary, the reforms described by Medicine in Denial were developed as solutions to concrete problems in patient care. No economic model ever motivated this work.

    SJM and some of the other commenters appear to believe that we are conservative, free market fundamentalists with a Panglossian faith in market outcomes as the best of all possible worlds. In fact, neither of us is a political conservative, and neither of us has any particular leaning for or against market-based approaches to reform. And both of us agree with SJM’s point that the health care system lacks some essential characteristics of well-functioning markets.

    The reforms advocated by Medicine in Denial are a hybrid of market-based and regulatory approaches. In the system of care that we outline, medical decision making would be largely unregulated, but only if the informational basis for decisions, and execution of decisions, are tightly regulated in specific ways. The regulation we advocate would enforce high standards of care, preserve individual freedom to exceed those standards, and impose continuous scrutiny, correction and improvement as part of the normal processes of care. Anyone who wants to understand these points needs to read the book. And readers should judge the book on its usefulness for solving problems with the health care system, not on its conformity to economic models or political ideologies.

    Turning to SJM’s three specific points:

    1. SJM asks how our proposed credentialing system would determine the skills of practitioners, and who would make these determination. We advocate something like the licensing system for commercial airline pilots. Their licenses to practice are temporary (they must re-qualify periodically), restricted in scope (a license is limited to a specific type of aircraft), and based on demonstrated skill in actual flight performance (as distinguished from mere completion of an educational or training program). Pilot credentials are determined not by professors but by peers, i.e. other pilots with extensive experience who have demonstrated high skill levels. Credentialing of this kind could and should be developed for all medical practitioners, not just physicians. This approach to credentialing would reveal that categories such as “physician” and “nurse” are artificial, historical accidents; they are not inherent in advanced medical medical practice. Moreover, this kind of credentialing would improve bring the quality of practitioner inputs under control. Such controlled conditions in medical practice would help enable scientifically rigorous study of ultimate outcomes.

    2. Referring to our distinction between “situations of relative certainty” and “situations of genuine uncertainty,” SJM asks, “Where exactly do these exist in medicine?” An example of a situation of relative certainty is the detailed case study we present in Medicine in Denial. An “obvious” diagnosis was missed for months, until the patient was near death. Once the correct diagnosis was recognized as a possibility, it was rapidly confirmed. The physicians realized that telltale signs and symptoms of that diagnosis were present from the outset of care, and the diagnosis could have been made with certainty at an early stage. SJM seems to believe that such cases are unavoidable, arguing that “the determination of the constituent components of these decisions is rarely straightforward.” Our point is precisely the opposite. In some cases, the determination is indeed quite straightforward. This happens when information tools, not the expensive minds of physicians, are used to assemble “the constituent components of these decisions.” Other cases are not straightforward; that is, we are are left with uncertainty even after assembling the best available information (medical knowledge and patient data). Those cases must then be pursued in a highly organized way, with careful problem definition, hypothesis formation, testing, and adjustment over time, all meticulously documented in problem-oriented medical records. Those records would enable scientifically rigorous study of medical practice, tracing the connections between its inputs and ultimate outcomes, leading to systematic improvements of those inputs, including medical knowledge itself.

    3. SJM points out that the concept of “‘monopolistic’ decision rights does not exactly exist as suggested,” because there is some degree of control by payers, peers and the tort system. But those forms of control are not effective, and they do not solve the problem of monopoly, i.e. lack of competition. Breaking the physician monopoly and building a true system of care would introduce effective control over medical practice. That control would enable quality improvement, cost reduction and enormous innovation from non-physician practitioners and organizations of every description in every sector (for-profit and non-profit, private and public).

  6. The Permanente Journal link goes to a 2008 manuscript excerpt (3 chapters). The final published version of the book (9 chapters) has been greatly revised and expanded from that manuscript. A Kindle version is coming. For readers wishing to preview the book, I can provide a searchable PDF of the final published full text, which may be freely distributed under a Creative Commons Attribution License. Contact ldweed@cox.net.

  7. Excellent reply from SJM. It also needs to be pointed out that most health care dollars are not spent in situations that contain a rational, fully competent patient and/or relative who would, together with the practitioner, “jointly use tools designed to elicit objective knowledge individually relevant to patient problems”.

    If you want to reduce individual physician authority (in order to improve outcomes and efficiency), it will take guidelines, incentives, public pressure (and probably peer review) targeting the medical community. But it’s not going to happen. The shitstorm of people yelling “death panels” combined with lobbying power is too strong, at least for the foreseeable future.

  8. “The conflict of interest can be avoided only by disaggregating physician authority. Whoever executes medical procedures must not be the party who decides what procedures are needed. Who should make those decisions?

    (1) situations of relative certainty,
    (2) situations of genuine uncertainty,
    In neither situation should physicians have decision making authority.

    The situation of greatest risk (medical and economic) is the second one, and there decision making authority should rest in the informed patient.”

    Same old consumer directed health care “solution”. What involves “informed” patient? The doc’s the one with the medical degree and experience. The patient’s the one with the method of payment. How do you propose to separate the correct medical decision from the ability to pay?

    “The reforms presented by Medicine in Denial would do more than change the dynamics of fee-for-service payment. The entire marketplace for health professional services would be transformed.”

    Good luck. Who’s going to bring all lobbyists together in a single direction where conflicts over payments/profits/incomes/treatment and political ideology are put aside to actually solve problems?

  9. Typing on an Ipod, what a mistake. F O R out of PROFIT in health care.

    Catch ya later.

  10. How many times do I have to write it:
    Take the F O R out of health care.
    It is that simple. Only those who want to keep dysfunction entrenched will basically retort long winded replies to in the end keep the status quo, just under the guise of government oversight.

    Who do you think will skim the money then? Oh yeah, just ship a couple of billions to Iraq, or maybe to Wall Street hedge fund investors?

    Einstein called it right, keep doing the same things and expect different results, and what is that called? American politics, oh, sorry, insanity!

  11. “If procedural physicians are credentialled solely on their skill, then it stands to reason that some of these will be ‘better’ than others, and an economic situation of a scarce resource (highest skilled) could promote increased cost due to the competition for this resource. How would these skills be determined and who would determine them?”
    ___

    Isn’t that how we otherwise vet people in the talent marketplace? Y’know, that beloved panacea “free market”?

    Not that I disagree with your other points.

  12. Exactly, forcing a business model of paradigm onto health care professionals. Gotta love when your own sell out, and then try to profit further.

  13. This is also interesting:

    http://www.thepermanentejournal.org/files/Summer2011/PatientSafety.pdf

    Abstract

    Both clinicians and patients rely on an accurate diagnostic process to identify the correct illness and craft a treatment plan. Achieving improved diagnostic accuracy also fulfills organizational fiscal, safety, and legal objectives. It is frequently assumed that clinical experience and knowledge are sufficient to improve a clinician’s diagnostic ability, but studies from fields where decision making and judgment are optimized suggest that additional effort beyond daily work is required for excellence. This article reviews the cognitive psychology of diagnostic reasoning and proposes steps that clinicians and health care systems can take to improve diagnostic accuracy.
    __

    Yeah. Reading reading about this kind of stuff (cognitive liabilities) for quite some time.

  14. The model is flawed, on many accounts.

    1. If procedural physicians are credentialled solely on their skill, then it stands to reason that some of these will be ‘better’ than others, and an economic situation of a scarce resource (highest skilled) could promote increased cost due to the competition for this resource. How would these skills be determined and who would determine them?

    2. “situations of relative certainty, where assembling the right information reveals only one reasonable option….(2) situations of genuine uncertainty”

    Where exactly do these exist in medicine? No doubt there are situations where the choice separated from the biased provider can be identified (i.e. coronary intervention for stable angina), however the determination of the constituent components of these decisions is rarely straightforward. Umm beware the ‘rationing’ argument to follow this one.

    3. The presence of ‘monopolistic’ decision rights does not exactly exist as suggested. Controls from payers, peers and the tort system prevent this to some degree. Once again, the concept of quality and outcomes evaluation could certainly further this control, however currently I often can’t even provide well established, peer-supported treatments to patients due to non-coverage.

    I firmly agree with separating industry influence, increasing control through patient choice, quality, data and outcomes-based treatment/payment.

    The authors however seem to be trying to force an ideal economic model on a system that has repeatedly been identified as non-Pareto imperfect.

Leave a Reply

Your email address will not be published.