Also missing: better ways to pay doctors and hospitals
posted 6-23-2009 7:50 p.m.; updated 7-13-2009 4:41 p.m.

 
In my last post, I began a list of what’s missing so far from health care reform efforts:

• enough primary care doctors, primary care nurse practitioners and hospital nurses
• more practitioners and resources in the right places
• better funding mechanisms for practitioner and hospital malpractice insurance
• a national medical malpractice arbitration system to settle most claims, similar to no-fault workers' compensation
• functional, properly financed metro and regional trauma networks
• better physician practice organization
• needed data collection and analysis on a large scale
• a federal privacy czar at cabinet level to monitor and police the privacy and security of consumers' medical, financial and other data and punish offending database owners and other violators

The last entry addressed the first four points. Since then, I’ve come up with two more missing pieces:

• better ways of paying health care practitioners
• better ways of paying hospitals

You’ll notice I didn’t include nursing homes or intermediate care facilities; that’s an entirely separate discussion and a mammoth Gordian knot of its own. Let’s leave that for another time.

By ‘better ways’ I mean mechanisms for paying health care providers that provide reasonable compensation for them without bankrupting the rest of us. But there’s more to it than that.

Saving money is the big reason all would-be reformers give for health care, given how overall health care costs have continued to balloon for the last two decades. That’s nice, as far as it goes. We can discuss which mechanisms are more likely to make the money we spend on health care cost-effective, meaning get the best results for the best price, then discuss what’s more likely to hold costs down. But the first question is: do we save money by paying practitioners and hospitals to do the right thing, or save money (in the short run) by just paying them less? That’s a key decision facing us now and the linchpin of any rational reform plan.

More to the point, before we shovel thousands, if not millions, of uninsured individuals into some new public plan, we have to have payment mechanisms that actually pay health care providers to do the right thing. We don’t have that. Worse, when providers find more efficient and effective ways to provide better care that costs less in the long run, providers usually lose.

You haven’t heard the cost argument articulated that way lately. That’s because nobody in Washington wants to put it in precisely those terms: it might cost more money in the short run to pay doctors and hospitals to do the right thing, and it would certainly require better and different payment systems than are in use now. Clearly, nobody’s volunteering to pay docs bonuses to practice evidence-based medicine at the highest state of the art, which is really too bad because that would mean practicing the most effective medicine. Also, developing such payment mechanisms would take much more time than Congress and the President have to get ‘something’ done quickly, i.e. by August or October, depending on which of those two stated deadlines you choose to believe (I’m really holding out for October, because I’m terrified of what nonsense might get passed in a hurry by August just to get ‘something’ done – BAD idea).

Politicians are already terrified of what it might cost to cover the uninsured, which is why they’re looking for ways to at least fake doing that while costing the federal government as little as possible. Like that can be done (not!). This is why they’d rather just do something simplistic and ineffective that they think they can pass and that still sounds good, until you think about it — like issue an individual mandate, meaning require uninsured people to get health insurance, whether or not they can afford it, without actually making sure that coverage really IS affordable and stays that way through some kind of cost control mechanism. That's the current approach in Congress. Tackling something as complex as provider payment formulas is a conversation they’d much rather not have just now and won't, unless the public steps up and starts demanding it as part of overall heath reform efforts.

The danger with health care reform has always been this: that when we finally had a large enough ‘critical mass’ of (formerly) middle-class people who have lost their health coverage and can’t afford to buy non-group coverage on their own, Congress and the president would suddenly feel enormous pressure to get ‘something’ done quickly – but anything that is done quickly and under that kind of pressure is likely to be a) done badly and b) wrong. Good plans take time to structure and execute correctly, and that’s assuming that you actually want a good, effective plan that addresses what most Americans need and want rather than whatever mish-mash politicians think they can sneak through. Guess which versions of health reform we’re looking at right now (you got it: the sloppy, simplistic, stingy, easier to pass but wrong ones).

Which means that if we want to do something rational and effective now while we work on those complicated issues, we need to give the uninsured some kind of coverage now in a way that doesn’t take a lot of reinvention and that has some safeguards and cost controls already in place – which is why I recommend putting all the uninsured into the Federal Employees Health Benefit Program, but I’ll go into the pros and cons of that next time. For now, let’s discuss those missing payment methods and why that’s a problem, especially for any public health plan alternative that Congress wants to propose.

Here’s the thing: we pay doctors and hospitals to provide services, period. The fewer services they provide, the less they get paid. Mind you, there are ways of checking the bills submitted to make sure what’s paid for isn’t medically unwarranted, but that’s doing things backwards. In paying merely for services rendered, we’re really asking practitioners and hospitals, nursing homes, etc., to choose between doing the right thing for individual patients and doing well enough financially that they can continue to stay in business. There are no monetary rewards for doing good or for doing better than other doctors or hospitals. Not surprising: all payors want to pay less, not hand out bonuses to the best providers.

When you make people choose between doing good and doing well, financial realities force them to choose doing well. It's just a fact. That’s not to say that doctors and hospitals won’t try to do good within the limited parameters given them – most will – but if they come up with a way of doing good that costs less, they usually won’t be compensated for doing that. Rather, they’ll be punished financially for doing the right thing.

The New York Times recently ran an article about hospitals being penalized by Medicare for reducing the number of readmissions following an inpatient stay. It’s just one example of many, but you can see why hospitals would be discouraged from trying to do this.

We’ve known about this dilemma of paying providers to do good versus do well for the last 25 years, but we haven’t done much to change that situation. Sure, we talked about it during the Clinton Administration, but we all know what happened to that attempt at health reform (it went nowhere). Way back in the late 1980s, a for-profit HMO company called U.S. Healthcare developed a pay-for-performance modifier that it applied to provider payment, and Aetna Health Plans inherited that formula when it bought out U.S. Healthcare some years later, but that was an exception. Many physicians contracting with U.S. Healthcare, later Aetna, grumbled about it, too, at the time; but no major players have improved upon that system or use a similar one.

The vast majority of health plans, both private and public (Medicare and Medicaid), still pay only for services provided. And that’s a bad idea, because public and private health plans mainly control costs simply by trying to pay ever less for those services rendered while inflation keeps pushing the cost of those services ever higher. This is an idiotic cycle, but it’s what we have.

All that most insurers have done with managed care plans is negotiate volume discounts with hospitals (that’s the reason for different charges to different patients for the same services); and they pay the majority of practitioners a monthly capitation fee – that is, a flat fee per patient enrolled in a given health plan that’s supposed to cover any physician services provided by that doctor during that month. This is supposed to give doctors an incentive to provide only necessary care, but it’s actually an incentive to simply provide fewer services.

Of course, most doctors aren’t that mercenary, and they usually don’t know which patients are covered by which health plans unless those patients are on Medicare or Medicaid. However, because Medicare and Medicaid rates are notoriously low, too many doctors won’t take Medicare or Medicaid patients unless those patients can pay out of pocket for care (not likely). Saying that a public plan for the uninsured would pay, say, 10 percent more than Medicare rates isn’t saying much and doesn’t guarantee that doctors would be willing to see patients insured by such a public plan.

You would think that enrolling Medicaid and Medicare recipients in managed care plans would be the solution, but it’s not – it’s merely a start, because of the disincentives of capitation that I mentioned earlier. Before you go rabid about managed care and how evil it is, let me point out that most private insurers don’t do much to see that managed care is practiced correctly – they’re only interested in lowering their own costs so that they can maintain their profit margins and keep paying ever higher earnings to stockholders. Because if they don’t pay higher earnings, the bloody-minded, notoriously short-term focused stock market will punish them.

This is where I remind you that free markets are first, last and always about making money, not about doing good or providing public rights – and most Americans consider health care a right, not a privilege, albeit perhaps a limited right like public school education. That’s why most Americans are pissed off about the high cost of health care in the U.S.: they know health care can be literally a matter of life and death, therefore every citizen and legal resident alien deserves access to care. How much and what kind of care is where the crux of the matter lies, at least where the benefit package for any public plan is concerned; but no matter what benefits are covered, we still have to pay for them in a fair and rational manner.

Moreover, practicing managed care the way it’s supposed to be done would be easier if we could simultaneously pay providers to do the right thing. What does managed care really mean, and what’s the critical thing to remember about it? I’m going to quote from my own 1995 book on managed care, Managed Care Strategies, because I made an effort to be precise and I’ve yet to find a more succinct description. The key sentences are in bold type:

… The reasons for supporting the use of managed care are many. But the most compelling one is that the alternative – unmanaged care – is financially, legally, and clinically unjustifiable. To go without managing care is to do a disservice to both the patients and the [health] plan, for which such a course creates potential liability problems.
Managed care seeks to provide the most effective care in an efficient, timely and sensitive manner, at a price that is acceptable to purchasers and still fair to providers. The approach also tries to document a [health] plan’s performance. … We already have an unmanaged [health care] system in the United States wherein people get services with scant regard for need, effectiveness, or cost; it’s called fee-for-service [care], and the nation can’t afford it. …

Traditional Medicare is a fee-for-service system, though with lower payments per service than private payors allow. Discounted fees are still fee for service – you’re still paying for services delivered, whether or not they were the right services or did any good. This is why the federal government started using diagnosis-related groups or DRGs for hospital payments, so that it could pay a flat rate for an entire episode of inpatient care, and physician payments calculated using the resource-based relative value scale or RBRVS, which tries to measure how much effort and how many resources go into a given physician visit for a given purpose.

That would be a good start if it weren’t for the fact that Congress and various administrations have consistently kept trying to ratchet down the payment rates even for those systems. There's always a carefully calculated rate increase, then a cut whenever the federal budget gets tight, which was always during the last three GOP administrations. President Obama and the current Congress are no different: those hospital 'savings' they've been bragging about are really just more cuts in the Medicare payment rate, which means more providers will be dropping out of those programs. In any case, both the Medicaid and Medicare payment systems are broken, and we can't fix them in time to use either as a public plan.

Let’s face it, the feds, like everyone else, just want to pay less for health care because the federal budget is skyrocketing for other ill-conceived reasons left over from Republican administrations, and the ill-conceived war in Iraq and poorly and intermittently fought one in Afghanistan during the Dubya administration simply doubled the size of the national debt and pushed us into the current recession. Paying for better patient outcomes, on the other hand, is complicated by arguments about whose patients were sicker to begin with, which is why it’s going to take time to develop reliable payment systems that have some kind of risk adjustment to them. No quick fix.

So, then: we need to start working right now on those better payment systems with rewards for using best medical practices, so that when we finally have a public plan that works (which will take at least another three to five years to build while we get those other missing pieces into place), we can start paying doctors, hospitals, and other health care providers appropriately – and not undercut health care reform by once again making providers choose between doing the right thing and staying solvent.

And while we work out better ways to pay health care providers, we need to cover the uninsured now. My suggestion: fold them all into the Federal Employees Health Benefit Program (FEHBP) and use federal taxes to subsidize their premiums, based on a sliding scale that considers income and includes everyone under 250 percent of the federal poverty level. More on that next time.