There is a widespread
assumption among health policy experts that the key problem with runaway health
care costs is unnecessary care driven by the incentive to over-treat that is
inherent in fee-for-service payment of doctors. Therefore, the argument goes, we
need to improve financial incentives for care coordination and reorganize
doctors into "Accountable Care Organizations," forcing primary care,
specialist physicians, and hospitals into shared financial arrangements that
shift at least some insurance risks onto providers, countering the
fee-for-service incentive to over-treat.
While there are certainly
some doctors providing unnecessary procedures due to fee-for-service financial
incentives, it is extremely unlikely that this is the root of our health care
cost problem. The argument that fee-for-service incentives are the driver of
excess health care cost is based on a fundamental misdiagnosis of the reasons
for unsustainable cost escalation in U.S. health care.
If one attempts to quantify
the sources of excess U.S. health spending by
looking at actual evidence, it is apparent that exorbitant and unnecessary
administrative costs are the biggest driver (around 20-25% of National Health
Expenditures1,2), followed by unnecessary care due to over-treatment3,4
(perhaps 10% of NHE, of which only a fraction is attributable to
fee-for-service incentives), and expensive complications of under-treatment due
to lack of access (perhaps 5-10% of NHE, plus a lot of suffering and death that
does not show up in health spending figures). About half of over-treatment is
due to unreasonable demands for care by patients, most of which is actually
driven by providers (direct-to-consumer advertising for drugs, ads by
hospitals, and by the recommendations of doctors.) Malpractice costs and
defensive medicine are only a few percent at most.5
There is a problem with
lack of coordination of care for certain patients, but the far bigger problem
is inadequate access to necessary care. There is a nation-wide shortage of
doctors in primary care and also in many specialties. This is compounded by the
problems of un-insurance and under-insurance, and the refusal of many doctors
to accept patients with insurance plans that are onerous, pay low fees, or
both. Care coordination is meaningless without access.
According to a recent CBO
report6, all 34 pilot care coordination projects funded by CMS
either failed to save any Medicare spending at all, or if they did save on
health care spending, they cost more in administrative expenses than they
saved, for a net increase in total cost for all of them. Three of four
payment reform demonstration projects that relied on pay-for-quality incentives
failed to save money, and the only successful one negotiated a discounted,
bundled fee for coronary bypass surgeries and did not use pay-for-performance
incentives. After three years, the PROMETHEUS project on bundled payments for
episodes of care has failed to implement any actual contracts due to the
complexities of defining a "bundle."7 Just about all the "cost
saving" initiatives in the Affordable Care Act (ACA) are along the same
lines and will fail for the same reasons.
There are only a few U.S.
health reform programs that have actually achieved significant cost savings
without relying on "cherry picking" healthier populations and avoiding sicker
ones. Major examples are Community Care of North Carolina8 and Rocky
Mountain Health Plans in Colorado9. The common denominator is not
elimination of fee-for-service, which both still employ; it is physician
leadership, high levels of physician participation and buy-in, significantly
improved access to outpatient care for sicker high-risk patients, and a shared commitment
to quality improvement.
Part of the problem is
indeed the imbalance in pay between certain specialties and primary care,
rooted in the flawed Medicare SGR physician fee schedule, and we do need to
re-think how the money is distributed between "cognitive services" and
procedures. Increased payment for primary care and care-coordination is part of
the solution, but does not require shifting insurance risk onto doctors via
HMO's or ACO's.
Administrative costs
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