Changing Health Care Payment Systems to Mitigate Unnecessary Care

In a recent New York Times op-ed, Dr. Abraham Verghese reviews some of the problems associated with an increasing reliance on technology in American medical practice. He focuses on the problem of unnecessary imaging studies and a commensurate worsening of physical exam skills. While important for health care providers, his discussion only briefly touches on the equally worrisome economic endgame of medical technology: the exponential rise in health care expenditures.

American medical providers have been traditionally paid in a Fee-for-Service (FFS) system that itemizes and bills for each procedure, medication, and scan a patient receives. During the United States’ post-war economic boom, expanding third-party insurance companies perpetuated the FFS system, which mimicked centuries of cash–only transactions between patients and their doctors.

When medical costs were low, FFS payments allowed providers a comfortable profit margin on a variety of procedures. However, the rapid rise in health care costs over the last several decades has placed providers under pressure to increase the volume of high-profit procedures — such as complex surgeries and imaging studies — and/or decrease the number of poorly reimbursed encounters, such as preventive care visits, with the goal of maximizing overall profit.

For patients, FFS payments can lead not only to astronomical medical bills, but potentially unnecessary care, such as the excess scans described by Verghese. In extreme cases, abuse of the FFS system can place patient health in danger, as highlighted by a recent scandal involving two cardiologists accused of installing 141 unnecessary cardiac stents — an extremely costly, and profitable, intervention — at a Western Pennsylvania hospital.

While not all FFS care leads to such dramatic health consequences for patients, the healthcare system certainly perpetuates a culture that ignores long-term quality and cost reduction. To both improve quality and lower cost, novel “integrated” healthcare delivery models must be developed that reward providers for considering the long-term quality of their patients’ health, rather than procedure volume and billable encounters. Previous attempts to create integrated care models — such as the much-maligned HMOs of the 1990s — swung the pendulum too far toward the cost control side of the equation, also at the expense of quality. Tricky as it may be given the politically charged debate surrounding health care reform, a tempered balance of quality and cost is essential to ensuring the future health of the country.

An integrated care delivery model currently under development, so-called Accountable Care Organizations (ACOs), may help diminish the amount of unnecessary care delivered by incenting providers to focus on quality and continuity of care. In theory, an ACO could provide a single, bundled payment for the entire continuum of each patient’s yearly care, spreading both risk and cost across the organization’s membership base. Providers would be rewarded for the careful balance of minimizing expenditures and maintaining a high quality of patient health. Still, as PolicyMic writer Nicole Sweeny recently discussed, ACOs remain a nebulous concept buried deep in the health care reform law and their final form is anything but certain.

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