There is no more perverse, more derailed concept in today’s health care environment than fee-for-service. Even Wikipedia knows true evil when it encounters it. Let’s read their definition:

Fee-for-service (FFS) is a payment model where services are unbundled and paid for separately. In health care, it gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality of care. Similarly, when patients are shielded from paying (cost-sharing) by health insurance coverage, they are incentivized to welcome any medical service that might do some good. FFS is the dominant physician payment method in the United States, it raises costs, discourages the efficiencies of integrated care, and a variety of reform efforts have been attempted, recommended, or initiated to reduce its influence (such as moving towards bundled payments and capitation). In capitation, physicians are discouraged from performing procedures, including necessary ones, because they are not paid anything extra for performing them.

And yet, year after year, American health care has managed to stay afloat with this supposedly deranged scheme. In fact, provider payments have continued to spiral lower even as the overall cost of caring for our nation has increased dramatically. By most estimates, physician services only account for 10% to 15% of annual spending.

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Is Wikipedia right? Does fee-for-service raise costs and discourage efficiency? Or is it possible that the ever-increasing costs of pharmaceuticals, health insurance, hospitalization, and mid-level administrators, accounting for the other 85% of the pie, are playing a role?

As ballyhooed as it may be, fee-for-service is the only system that recognizes physicians (also nurses and therapists) as the value proposition of modern-day health care. That’s right: it is the physician who adds value. The more of her time and energy expended, the greater the cost.

Conversely, the darlings of health care reform (bundled payments, capitation, and pay-for-performance) divorce skilled providers from the equation. Payment becomes dependent on some mangled formulation of diagnostic codes, lives covered, or misinterpreted quality indicator.

I suspect that the move away from provider-centric payment schemes to system-centric ones will have untold consequences. Hospitals and large medical groups will quickly become the dictators of capital distribution. Physician services, no longer the driver of the system, will be reimbursed at a trickle.  Lesser-trained, lower-cost individuals with narrower scopes of practice will be hired to replace them.

And instead of a system driven to the brink by overutilization, we will have a community dying under the care of large corporations bent on squeezing out another 10% from the bottom line.

Kind of sounds a lot like the whole HMO fiasco of the 1990s, doesn’t it?