Eeny Meeny Miney Money: Understanding Fee-for-Service Alternatives

November 5, 2014
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Value Based PurchasingWhen we look at the fee-for-service model from only one perspective, it’s easy to condemn it as “the reason” healthcare spending has spiraled out of control.

Value Based PurchasingWhen we look at the fee-for-service model from only one perspective, it’s easy to condemn it as “the reason” healthcare spending has spiraled out of control. When it comes to how providers bill for services, having the ability to bill for anything and everything could, and certainly did, encourage the ordering of too many tests and procedures, even unnecessary ones. The idea of value-based payment models not only encourages providers to make more mindful choices, but cost-effective ones too. It also challenges healthcare systems, pharmaceutical companies and patients to be even more vigilant about healthcare costs. Fees are relative to each party involved. 

For payers, the idea of ‘fee-for-service’ isn’t inherently a bad one. Fee-for-service and quality don’t have to be mutually exclusive. When payers second guess claims, or refuse to pay them, the motivation isn’t necessarily linked to the quality of the care provided. Often, it’s a matter of cost efficiency: maybe the care was stellar, but did it need be so expensive? Could that quality of care been achieved for less money?

In terms of getting healthcare back on track financially, these are actually important questions to be asking. And by asking these questions, healthcare innovators become motivated to find new ways to get maximum quality for minimum cost. When it comes to government insurance, the drive to achieve maximum quality for minimum cost is meant to lessen the financial burden of taxpayers.

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From the provider’s perspective, it probably doesn’t seem reasonable to expect every patient with the same condition will have the same healthcare needs and, therefore, costs. In the short view, this might be true. But if payers are looking at averages across longer periods of time, and looking at data collected from multiple sources to see if, indeed, there are similarities among certain patient demographics that can be quantified. By quantifying them, and backing it up with supporting data, payers can create a picture of patient populations that can be assigned a cost value.

The consistency of this analysis and the results isn’t a perfect science, though. But the point behind it, for payers, is creating a somewhat predictable model so that regardless of where the patient receives treatment, whichever provider, the quality and cost is equivalent.

So too, then, must payers be confronted with the reality of fraud and abuse. In any payment system, individuals determined to do so will “work” the system to their advantage, even if that means fraud. However, in some cases, the system is set up in such a way that it lends itself to being vulnerable to abuse. Fee-for-Service models are, inherently, vulnerable if they are not paired with careful measures of tracking, review and an overall atmosphere of accountability.

The trap that providers and payers can fall into is forgetting the end-all, be-all of policy changes and decision making around payment models: the interest of the patient.

Fee-for-Service goes back to World War II, when the concept emerged simultaneously with the first round of managed care. Keeping that in mind, it’s probably one reason it’s been so hard to shake. During WWII, when employers were short-handed, what with so many men overseas, one way to entice people to work for them was by offering health benefits. We still practice this, but, as more people rejoined and joined the workforce, the benefits plans needed to become competitive. So, prices went up – and managed care didn’t fare well in the following decades.

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Then, with the introduction of Accountable Care, the underlying motif of managed care resurfaced – and appeared to be a decent solution to the overwhelming cost control issues that plague healthcare after years of practice-and malpractice-of the fee-for-service model.

For payers, though, it’s not a simple ‘and/or’ – there are actually several other fee-for-service alternatives out there, some of which are quite different from the previous, sole alternative of managed care. Bundled payments, shared savings and partial capitation provide healthcare organizations and payers more options than ever before in terms of how they handle cost.

Moving away from fee-for-service is essential to creating a sustainable healthcare system in the U.S., but the alternative that will be widely utilized has yet to emerge in a majority.