Will Massachusetts Kick Fee-for-Service to the Curb?

by Tim Foley

categories: Doctors and Nurses, State and Local Efforts

Published July 19, 2009 @ 07:46PM PT

The fee-for-service payment system for health care constantly affect the type and quantity of care we receive – often to our detriment.  The financial incentive is towards providing more care, not better care.  As I wrote before, “Whether the ‘service’ was successful or not, the doctor or the hospital gets the same ‘fee.’  Ditto whether the ‘service’ is necessary or not.”  Now the state health care commission in Massachusetts has unanimously voted to end fee-for-service in the state – but what will take its place?

It’s fortuitous that this news broke in the same week as the federal debate on health care became so cost-control crazy.  Massachusetts’ move is bolder than anything seen at the federal level thus far – but it also shows the downfalls, politically and policy-wise.

The plan is for a “global budget” per patient.  As described in The Boston Globe,  the move would compel “private insurers and the state and federal Medicaid program to pay providers a set payment for each patient that covers all that person’s care for an entire year and to make the radical shift within five years. Providers would have to work within a predetermined budget, forcing them to better coordinate patients’ care, which could improve quality and reduce costs.”  This is very similar to the payment structure known as “capitation.”  The idea is that if you pay up front for what should be all of the patient’s needs, the doctor or hospital will have financial pressure to keep you healthier so you use less of the allotted “budget.”

As an example, although presumably no one consciously wants a patient with a cardiac episode requiring hospitalization to not get better, there’s not much incentive to have the patient sit down with a nurse practitioner or a social worker to go over self-treatment to prevent readmission – there’s no fee for that service, only for the hospital visits.  It’s bad for patient care but good for the bottom line if a patient has to come back in 30 days or fewer because they didn’t learn how to improve their condition.  As such, hospital readmission rates in this country are completely unacceptable and wasteful.  Under the global budget scenario, each return trip would be draining the capitated payment.  Now hiring that N.P. or social worker to instruct the patient or follow-up a few days later has the potential to save a lot of money.

Massachusetts has come to this out of sheer financial necessity.  With a huge state responsibility for health care because of Medicaid and the state universal health care program combining with the same economic recession hitting everyone else, they simply can’t afford the excesses of fee-for-service.  But capitated payment has a spotty history.  HMOs in the 1980s and 1990s operated under capitation, which soon developed its own excess – denying care so that more could be pocketed as a profit.  The “global budget” is structured more like coordinated care – requiring the primary care provider to not just serve as a gatekeeper but also verify that patient care conforms with best practices.

It’s a bold move that will affect all Massachusetts patients not on Medicare or at the VA (Medicare patients will be operating in a system that’s primarily fee-for-service).  It’s a real attempt at cost control.  As such, it already scares the bejeesus out of some in the Bay State. Will the yearly cap on compensation be too low?  Will it take into account not just foreseen healthcare costs, but unforeseen liabilities, like a catastrophic illness or injury?  If doctors and hospitals decide to fight it, how long before the first reference to “rationing care” gets directed at the general public?  Who will pay for the investments in technology and administration that would make administering a global budget possible?

Controlling costs is hard – particularly if we wish to avoid the cost-setting route most other countries utilize.  But if Massachusetts moves forward and develops a system that saves costs and improves quality, it won’t be long before the “bold” because the commonplace across the country.

(Photo credit:  Philocrites on Flickr.)