Fee-for-service killing health care system

By JIM LANDERS

WASHINGTON — Health care reform has run aground on a cost sandbar.

There’s plenty of controversy about extending health insurance and paying for it with new taxes. The bigger obstacle, however, is the inability of Congress and the Obama administration to find a way to rein in spending.

We pay for health care one service at a time. There’s a bill for an office visit, for a blood test, for an X-ray, for a hospital bed, a specialist and so forth. There’s fairly broad recognition that this fee-for-service way of paying for care is a big part of the problem because it rewards doctors, labs and hospitals for more stuff rather than making or keeping the patient well.

It can make for some perverse incentives.

If medical providers keep patients healthy enough to stay out of the hospital, they lose money under the fee-for-service system, said Andrew Dreyfus, an executive vice president with Blue Cross Blue Shield of Massachusetts, but the system “rewards treatments for infections acquired in hospitals.”

Two years ago, Massachusetts gave nearly everyone in the state access to health insurance, with the predictable result that health care costs are wrecking the state’s budget.

Health care spending has been rising 10 percent a year in Massachusetts.

This month, a blue-ribbon panel created to find a way out of Massachusetts’ health spending crisis recommended abolishing the fee-for-service system and replacing it with a single payment based on a comprehensive, coordinated patient treatment program.

Congressional committees haven’t gone that far. Democrats (not one Republican has voted for any of the three bills approved so far) have tried to curb Medicare spending on hospitals and drugs with bonus offers for moving away from the fee-for-service model.

Doctors, however, are left out of the cost cuts. Instead, they’re given a reprieve from a Medicare formula that automatically cuts higher physician reimbursements.

The nonpartisan Congressional Budget Office calculates that these provisions largely cancel each other out, leaving the country no better off on the rising cost of health care.

(The budget office estimates that providing health insurance for 34 million Americans would cost an estimated $1.042 trillion over 10 years. House Democrats say they’ll pay for that by cutting reimbursements for Medicare Advantage insurance plans, mandating businesses to either provide insurance or pay into a public insurance fund, and with a surcharge on higher-income taxpayers.)

But unless the legislation slows the increase in health care spending, “we’re simply going to make things worse,” said Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee.

Bipartisan bill

The finance committee seems like the only one left where a bipartisan bill might still emerge.

Grassley and committee chairman Sen. Max Baucus, D-Mont., have spent more than a year discussing the weaknesses inherent in a payment system that rewards lots of provider services instead of what best suits the patient’s needs.

How much money could be saved by turning the payment system around?

Peter Orszag, director of President Barack Obama’s Office of Management and Budget, argues that health spending could be cut by a third — more than $700 billion a year — if doctors and hospitals coordinated patient care for quality and efficiency. That finding is supported by research done at the Dartmouth Institute for Health Policy in New Hampshire.

John Goodman, president of the Dallas-based National Center for Policy Analysis, says the savings from Orszag’s approach would be far less.

Goodman agrees that the current payment system gets the incentives wrong. To save money, he would let doctors devise new payment approaches to do more with less bureaucracy.

He would also give patients more financial responsibility — and more information — so they would have an interest in cost as well as quality.

X Jim Landers is a columnist for The Dallas Morning News. Distributed by McClatchy-Tribune Information Services.