Will Fee-for-Service Really Disappear?

Leigh Page


October 29, 2013

In This Article

Push to Change Payments Gains Momentum

Despite all the harsh criticism, fee-for-service still dominates physician reimbursement. Catalyst for Payment Reform, an employer coalition campaigning for value-based payments, estimates that almost 90% of healthcare is paid under fee-for-service , with its complex web of current procedural terminology (CPT) codes for each piece of work done.[6]

However, eliminating the old system would not be that extraordinary. In 1982, Congress moved hospitals to diagnosis-related groups, which make a set payment for each diagnosis.

Even Republicans, who want to repeal the Affordable Care Act, are not defending the old payment system. The American Enterprise Institute, a conservative think tank, has called for an end to Medicare fee-for-service,[7] and an active bill in the House of Representatives would reduce payments to physicians who stay on the old payment system in exchange for repeal of the sustainable growth rate (SGR), which mandates cuts in physician payments.[8]

Ending fee-for-service is often cited as a prerequisite for eliminating the SGR. The old payment system is thought to drive up utilization, which was why SGR was needed in the first place. Physicians' organizations like the American Medical Association, American College of Physicians, American Academy of Family Physicians, and American College of Surgeons have agreed that fee-for-service should be phased out, in conjunction with ending SGR.[9,10]

Front-Line Doctors Beg to Differ

While leaders of organized medicine seem ready to phase out the current payment system, rank-and-file physicians want to keep it. Thomas M. Flake, Jr., MD, a solo general surgeon in Southfield, Michigan, argues that fee-for-service incentivizes physicians to work hard and avert shortages in care. He said this hard work means that healthcare in the United States is number one in its responsiveness to the needs of individual patients and short waiting times.

Flake says new payment methodologies force physicians to worry too much about costs, and their use of teams of caregivers means that no one is accountable. He says he is not against use of the new payments but "don't mess with my practice. Leave me and my patients alone. I just want to be paid fairly for what I do."

"The mantra that fee-for-service is broken cannot go unchallenged," says Robert J. Sobel, MD, a Chicago internist who partners with another physician. The current system, he says, is a "natural" means of payment, used to reimburse many professions across the economy, and it is much simpler to use than the value-based methodologies that would take its place. "You need a bureaucracy to sift through the payment data to determine the value of your work," he says.

Jonathan Oberlander, PhD, Professor of Social Medicine at the University of North Carolina at Chapel Hill, is one of the few policy experts who question the change in payment systems. He noted that physicians in Canada are almost entirely paid using fee-for-service, and that country's medical inflation has been well below that of the United States.

The difference is that the Canadian system is based on spending budgets set by province-based single-payer systems. Strict budgets may not be popular in the United States, but they are essential, Oberlander says. "Controlling spending is basically a political problem -- agreeing to set budgets -- and not really a matter of finding the right payment mechanism," he says. The new US payment methodologies are still largely untested, he observes.

Oberlander says that US healthcare planners have an exaggerated fondness for new payment systems, going back to the call for capitation and health maintenance organizations (HMOs) in the late 1990s. Capitation -- paying a set monthly amount for each enrolled person, whether or not that person seeks care -- is credited with briefly controlling healthcare spending, but the public revolted against HMOs, and physicians with sicker patients lost money. Policymakers concluded that capitation, in its purest form, contained a powerful incentive to withhold care.


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