Fee-for-Service: Dead or Clinging to Life? Experts Tell

Liz Seegert

January 14, 2020

Larry Kosinski, MD, a gastroenterologist in Chicago, has made most of his income throughout his life through fee-for-service. But he's been encouraging his colleagues to move from fee-for-service to value-based care since 2012, when he chaired the practice management and economics committee for the American Gastroenterological Association.

However, getting physicians to move to bundled payments from fee-for-service has been challenging. "What you're fighting in this whole process is an entrenched infrastructure of billing," he said. "Know why we do the colonoscopies? We get paid for them."

"Fee-for-service is not dead," Kosinski said. "This is going to take time. We're pushing on a glacier. It's going to take a long time to mold practices and shape them into value-based care."

About a third of physicians are paid through some type of alternative payment model (APM). In 2018, APMs comprised 35.8% of total US healthcare payments, up from 23% in 2015, according to a report from the Health Care Payment Learning & Action Network. And fee-for-service continues to dominate payments to physician practices. A 2018 survey found fee-for-service or salary was still the primary payment methods, although the payment model is declining. In 2016, 52% of respondents were in fee-for-service arrangements; in 2018, it was 42%. More physicians are opting for salaries: 59% in 2016 versus 68% in 2018.

The Centers for Medicare & Medicaid Services (CMS) and insurers have been pushing and encouraging the move away from fee-for-service toward value-based care. As of 2018, CMS' Center for Medicare & Medicaid Innovation (CMMI) launched over 40 payment models, including seven ongoing and two newly announced episode-based plans. And there's plenty of evidence that bundled payments or value payments save money. But physicians anticipate and see less income from bundled payments, and many are already reeling from debt.

Despite increasing pressure from CMS to contain costs and provide more streamlined, efficient care, many physicians have no desire to eliminate fee for service. Physicians agree they have some responsibility to address costs in their practice, but a majority of those surveyed believed others, including trial lawyers, health insurance companies, hospitals and health systems, pharmaceutical and device manufacturers, and patients have a "major responsibility" for reducing healthcare costs. Only 36% said the same about practicing physicians.

Clearly there are some opposing forces: insurers want more value and bundled payments; many physicians prefer to stay with fee-for-service. So where does it stand?

The Impetus for Value and Bundled Payments

Payment change is moving ahead. CMMI created the Bundled Payments for Care Improvement (BPCI) initiative in 2016 as part of the Affordable Care Act; it links four broadly defined models of care with payments and risk. Results have mostly been positive, so CMS launched the Bundled Payments for Care Improvement Advanced (BPCI Advanced) model.

It includes 29 inpatient and three outpatient episodes of care; participation is voluntary and involves a single retrospective payment for 90-day clinical episode duration. CMS found that several of the earlier models reduced Medicare payments for most clinical episodes and maintained quality of care for Medicare beneficiaries. There are currently 1299 participants in years 1 and 2 of the BPCI model. Year 3 of the model began on January 1, 2020.

States Pushing for Value-Based Payment Under Medicaid

There's a fair amount of activity that's mandated by states, independent of separate mandates by state agencies, as part of those states' push for alternative payment models in their Medicaid programs, according to Francois de Brantes, senior vice president, commercial business development, for business software and service provider Remedy Partners. He cites Oregon and Washington as examples where payers and providers have very specific targets for converting their fee-for-service contracts to value-based payment contracts. They have written detailed objectives for their bundled payment programs into regulations, or legislation, or both. It's also happening in other states, including Tennessee, Ohio, and New York.

Despite challenges, some major carriers are getting on board, transitioning away from fee-for-service for certain procedures. There isn't yet a lot of long-term data available. In 2017, 34% of healthcare payments were tied to value-based care — a substantial increase from 2015, when only 23% of payments were tied to bundled payment models, according to Advanced Billing & Consulting Services (ABCS).

Humana has expanded bundled payments for its Medicare Advantage members. This includes part of existing episodes of care coverage for orthopedic and neurology practices, such as total joint replacement. Humana has a 17% share of the healthcare insurance market and is among the largest Medicare Advantage insurers in the United States.

"We're seeing less fee-for-service and more movement from regional carriers than from the national carriers, as well as increasing interest in this model on the part of employers," said de Brantes. "I think in 2020 we're going to see a lot more of it and start to see it at a bigger scale."

The Forces Keeping Fee-for-Service in Play

The chief factor to keep fee-for-service is probably the fact that physicians typically earn more through this payment model, and for physicians, there are usually fewer reports to send in, less record-keeping, and less time spent on documentation to hopefully earn a "value" bonus or payment.

Robert Shannon, MD, a family medicine physician who retired in 2018 from the Mayo Clinic in Florida, is not a fan of bundled payments. His experience with bundles, "which is just a fancy word for capitation," was frustrating. For one thing, he said, it did not allow for difficult-to-anticipate variables.

There's nothing in [bundled] payments that help mitigate the burden of patients' poor choices or lack of compliance.    Robert Shannon, MD

"There's nothing in these payments that help mitigate the burden of patients' poor choices or lack of compliance," said Shannon. He refused to change his practice approach to meet some annual benchmarks, which he said were a moving target. "Some years I made more, or less, but I gave the patients the same care they'd come to expect."

The burden of billing, paperwork, and calculating output disappeared after Shannon joined the Mayo Clinic in Rochester, Minnesota, in 2000 as a salaried employee. Shannon, who is also certified in sports medicine, geriatrics, and palliative care, could just focus on patient outcomes.

However, he points out that the Mayo Clinic is also very cost-conscious. They were an early adopter of bundled payments, striking a deal for knee replacements with Blue Cross/Blue Shield Florida and their facility in Jacksonville in 2012.

A Quest Diagnostics survey in 2018 of payers and providers found physicians are concerned that quality measures are too complicated to always meet CMS goals and they don't always have all the information necessary to improve outcomes. Both physicians and healthcare executives agree that the United States has not made enough progress towards value-based care, and two thirds (67%) agree that the primary US payment system is still fee-for-service.

Many physicians are not used to working across the care continuum with other clinicians, and some lack the appropriate infrastructure or transparency. "The hesitancy of most physicians in engaging in these alternative payment models ends up by being [first], do I understand the deal that's in front of me? Is it clear? Does it seem fair? Do I have enough information?" said de Brantes, who has spent the bulk of his career working to transform the US healthcare system by encouraging value-based decisions.

"[Second], do I have good ways of mitigating any downside financial risk, and also, is it clear enough? Do I have enough information that I can act on this payment model and optimize my likelihood of generating savings?" he asked.

"When you actually look at the options for providers around various financial risk arrangements, the episode of care-based payments more often than not help meet those and respond to those questions," de Brantes said. "But unfortunately the design of these programs isn't done in a way that satisfies the answers."

Liz Seegert is a healthcare writer based in Little Neck, New York.

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