Will Fee-for-Service Really Disappear?

Leigh Page


October 29, 2013

In This Article

Benefits of a New Payment System

François de Brantes, Executive Director of the Health Care Incentives Improvement Institute, a nonprofit organization that develops new payment models, believes physicians' devotion to fee for service is really "a fear of the unknown." Under the old system, "you know it's about volume, and you know how to produce volume," he says.

De Brantes and other healthcare planners have been devising new controls to address the counterproductive attributes of capitation. Partial capitation, for example, covers only the professional fee or certain types of patients, and bundled payments encompass all the care for certain patient groups, such as people with chronic conditions, or certain procedures, such as all the care required for a hip replacement. In arrangements like the patient-centered medical home, a variety of caregivers team up to provide care.

Also, improved information technology can better pinpoint physicians' spending targets and monitor outcomes to make sure that patients are getting the care they need.

De Brantes says that the current payment system relies on the resource-based relative value unit, which favors procedures over office visits, forcing primary care physicians who rely heavily on office visits to work longer hours just to break even.

De Brantes says that the payment imbalance has also driven practices to consider adding more procedures that can bring in new sources of revenue. "Physicians are aware that extra services are being ordered that are not needed," he says, pointing to the American Board of Internal Medicine Foundation's Choosing Wisely® campaign, which spotlights services that have no clinical benefit.[11]

De Brantes says that the new payment methodologies would be simpler for physicians to administer. Rather than billing for a long string of CPT codes, practices could report the total episode of care and be paid for approaches that traditional insurance won't pay for, such as emails and follow-up calls with patients.

There are signs that this approach can lead to big savings by avoiding duplication of services and keeping patients out of the hospital. For example, UnitedHealthcare reported that in 4 states, for every extra dollar it paid for medical homes, it realized $2 in savings.[12]

Switching to a Pay-for-Performance Model

In a 2013 survey of health plans by Availity Research, a revenue cycle software company, one fifth of plans reported that at least half of their business was "supported" by value-based payment models.[13] Almost half planned to reach that level in 3 years.

But these changes do not necessarily mean a break from fee-for-service. The survey showed that currently the most common value-based arrangement is pay-for-performance (P4P), which continues fee-for-service payments, often at a reduced rate, and adds a bonus for meeting certain targets.

While new systems like bundled payments are supposed to be easier for practices to administer, P4P is actually more difficult because reporting metrics for bonuses vary widely by payer, prompting complaints from many practices, according to a report by the Massachusetts Medical Society.[14]

WellPoint, which operates the Blue Cross Blue Shield licenses in 14 states, considers itself one of the leaders in the move to "value-based" payments. "We're not kidding," says Jill Hummel, Vice President of Payment Innovation at WellPoint. "Value-based payment is our new normal." She says such payments, which now reach $25 billion a year, include some capitated models, but the prevalent mode for smaller practices is a version of P4P.

Hummel says that many practices still aren't ready for the more sophisticated models. "We're trying to get providers comfortable with tools and information," she says. "It's not so much that fee-for-service is going to go away overnight; it's more that its role will change over time."

P4P payments are also the basis of the shared savings program for Medicare ACOs, although ACOs have the option to use capitated payments.

Berenson, the former Medicare Payment Advisory Commission Vice Chairman, says that for payers to fully move to the new payment systems, they would have to change the entire way they do business -- replacing fee schedules, overhauling computer systems, renegotiating contracts, and retraining staff. "It will take a while to build the infrastructure to administer most of the new payment models," he says.

Indeed, the Availity Research survey found that 90% of surveyed plans still used some manual elements in their information exchange, which makes it hard to compile information needed for new payment methods.

According to de Brantes, the payment innovation expert, Medicare has fallen behind commercial payers in adopting new methodologies like bundled payments. CMS's new Center for Medicare & Medicaid Innovation has inaugurated disappointingly few demonstration projects for bundled payments, he says.

De Brantes has greater hopes for bundled payments in Medicaid. The states, with their budgetary problems and upcoming Medicaid expansions, have "a higher degree of urgency," he says, based on the fact that Medicaid financial problems are becoming more severe. He points to a new initiative by Arkansas Medicaid, which started a year ago.

Multiple Payment Systems in the Future

Will physicians still be getting fee-for-service payments 10 years from now? Even proponents of the new payment systems believe that there will always be a place for fee-for-service.

"I think there will be fee-for-service forever -- not as the sole method of payment but as one of many," says Berenson.

De Brantes agrees, noting that one obvious area for continued payments is preventive care, such as flu shots. For such services, "you want to encourage volume, and fee-for-service is by far the best way to do that," he says.


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