Medicare and the Other Side of the Physician Fee-For-Service Controversy

Keywords - Physicians, fee-for-service, accountable care organizatins,  Medicare, savings, independent payment advisory board, physician payment

Medicare’s design was based on the historical demands of the medical profession for “fee-for-service” (FFS) payment: “free choice of treatment” without accountability for quality and outcomes; Medicare to pay the doctor’s “usual and customary” fees; solo practice and physician autonomy (without coordination or teamwork).

FFS means more money to the doctor for doing more and more costly services. The doctor who prevents the patient’s costly medical problem or solves it quickly and inexpensively does not prosper in this model.

Alain Enthoven and Alan Glaseroff, “Bringing Medicine into the Twenty-First Century,” Health Affairs Blog, August 20, 2012

The uncapped entitlement and distorted fee-for-service structure of traditional Medicare are major causes of the rapid rise in program spending. Poorly targeted fee-for-service payments promote the use of more — and more expensive — services, delivered in a fragmented and uncoordinated environment. The result has been higher spending and poorer patient outcomes.

Joseph Antos, Mark Pauly, and Gail Wilensky, “Bending  the Cost Curve Through Market-Based Incentives, “ New England Journal of Medicine, August 1, 2012

August 21, 2012 -  To policy wonks,  bending  down the cost  curve of Medicare is simple.

·         End fee-for-service

·         Pay doctors a fixed amount for episodes of care or for total care

·         Corral doctors into accountable care organizations, place them on fixed budgets,  bundle hospital-and doctor bills, put them at financial risk if they exceed budgets.

·         Give patients, doctors, and health plans  a defined benefit, a fixed amount, or a premium-support, that you will pay them

·         Have the president appoint a 15 member Independent Payment Advisory Board to dictate what to pay doctors.

A Problematic Scenario

For doctors this scenario poses a problem.  Doctors are keenly aware, for instance, that the so-called $716 billion in "savings" in Obamacare comes in the form of 40% cuts in hospital and physician in the name of  increased "efficiencies" amd enhanced "outcomes," over which they often have no control.

Doctors distrust Medicare as a payment source. They think of Medicare as a lousy business partner.  In one way or another –  approving the Resource Update Committee  (RUC) recommendations or imposing  arbitrary fees for services and procedures, Medicare now sets Medicare fee-for-service fees

These fees often bear  little relationship between physician time and skills needed  to get the work done.  Medicaid now  pays on average 56% of private health plan fees and Medicare 81% of these fees.

As James Merritt, Joseph Hawkins, and Phillip Miller explained in Merritt, Hawkins & Associates Guide to Physician Recruiting in 2007.

“Physicians are different from other professions by virtue of the ground rules of contemporary medicine. The ground rules are largely determined by the way in which medical services are paid for in the United States today. Medicare sets physician payment rates for a wide range of services categorized as Diagnostic Related Groups (DRGS). An orthopedic surgeon might be reimbursed $500 by Medicare for setting a simple bone fracture. Private insurance companies often set their reimbursement rates based on what Medicare pays.’

“The point is that physicians rarely set their own fees. The money reimbursed to them for services may have little or no relation to their cost of doing businesses. What can be more aggravating is that sometimes third parties also dictate what physicians can or can’t do for their patients, by declining to pay for services physicians may believe their patients need.”

“This is not the environment most of us work in. There is no “third party” barrier between the lawyer, the accountant, the computer programmer, the plumber, the mechanic and his or her coolants. They all set a fee, perform a service, and are paid directly by the person for whom they did the work.

Imagine a plumber who fixes a pipe for a fee set by the government – a fee that does not meet the cost of his tools. The plumber then submits a bill- not to his client, but to an agency or insurance company. The agency or company then declines to pay the bill on the grounds that they do not cover this particular service under those particular circumstances.”

“It would be no surprise, under these conditions, plumbers became a generally cranky group – especially if they had to complete 11 to 15 years of post-college training to become plumbers.”

Something Rotten

Something is rotten in the state of Medicare, for example, when a physician stays up all night to save a patient with ventricular arrest, submits a bill of $1500, and receives a Medicare payment of $160.

Yet it is not uncommon for physicians to receive 1/10 to ½ of the amount of the bill they submit.    Medicare  technocrats arbitrarily, capriciously,  and unilaterally pay what  they want to pay.   There is no recourse – no appeal –  physicians must simply shrug their shoulders and bear the financial pain.

The public  is generally unaware of the discrepancy  between work done and amount paid.   When a patient receives a bill,  it lists what the doctor charged and what Medicare paid.  Patients have commented to me they have noted the difference, but they aren’t paying themselves so what the hell.   It’s no money out of their pocket and no skin off their back.

But doctors notice.  A physician friend of mine told me the story of his wife who suffered from uncontrolled renal –based hypertension which had induced heart failure.   The ER physician spent 4 hours turning the situation around.  He submitted a bill for $677.00 and was paid $324.83,  48% of wht he requested.

Yet the notion persists among wonks that “open-ended fee-for-service” with the incentive to do more of everything  is the root of all health inflation evil – that and the lack of “coordinated care,”  “accountability for outcomes,”  and rewards for “quality and efficiency.”

I suppose this all makes sense to wonks in their distant offices, accountants with their green eyeshades, and Washington-based Medicare technocrats, but it does not make sense to physicians in the trenches who spend 11 years to 15 years learning and mastering their skills.    The discrepancy contributes to the looming doctor shortage.

Medicare has created what one physician described at a Pettifogging Physician Payment System (PPPS)that  pays petty amounts under cover of an impenetrable bureaucratic fog.   PPPS also creates a practice environment from which physicians are fleeing by refusing to accept new Medicare patients,  creating cash -only practices,  forming concierge practices,  and retiring and quitting.  Why does the FFS controversy matter?  Because the controversy  produces conditions that place America on the verge of a monumental physician shortage.

Tweet:  There is often little relationship  between the time doctors spend treating patients and what Medicare pays for fee-for-service.