To Contain Health Care Costs, Pay Doctors Differently

(Politico, March 4, 2013)

by Bill Frist and Steven Schroeder

Lawmakers have spent decades dancing around how to stop health care costs from eating up greater and greater portions of our overall budget. Even now, the proposals on the table look at cuts in services, asking seniors covered under Medicare to pick up a higher proportion of out-of-pocket costs or assessing whether to eliminate the sustainable growth rate formula aimed at controlling Medicare spending on physicians. These proposals, at best, address the problem of health spending at the margins.

The real culprit here is fee-for-service payment to doctors.

We cannot control runaway medical spending without changing how physicians in this country are paid — currently the single most significant driver of health care costs. We pay physicians according to the number of services they provide. The skewed financial incentives inherent in a fee-for-service model promote fragmented care and encourage doctors to provide more — and more costly — care, regardless as to whether those services improve the health of patients.

Recent reports from the Congressional Budget Office and the Centers for Medicare and Medicaid Services show that the rate of health care spending growth is slowing. But that doesn’t mean the problem has been solved or that slowed growth is permanent.

As co-chairmen of the National Commission on Physician Payment Reform, we urge lawmakers, health care providers and insurers to abandon the fee-for-service payment system within five years.

Five years should provide enough time for CMS and private health insurers to further explore models of care such as accountable care organizations and patient-centered medical homes that reimburse doctors through fixed payments and shared savings, and adopt bundled payments for patients with multiple chronic conditions.

The current system places an emphasis on high-technology care and interventions, such as imaging and surgery. Services provided by surgeons, radiologists and other procedural specialists are reimbursed at a much higher rate than critical wellness visits with a primary care physician or office visits to discuss diabetes care. This reimbursement model discourages doctors from spending time with patients, particularly those with complex chronic illness, and has fueled the widening pay gap between specialties and the nation’s primary care shortage.

This same pay structure is influencing the number and type of services that physicians recommend and even where those services are done. Under Medicare, medical services performed in outpatient facilities are reimbursed at a lower rate than the same services provided in hospitals. For example, Medicare pays $450 for an echocardiogram done in a hospital and $180 for the same procedure in a physician’s office. That makes no sense.

As physicians who have practiced medicine under the current pay system, we know only too well the temptations to order more tests, to be sure that we have tried everything. We also know that high-tech tests aren’t necessarily what the patient needs or wants, especially if the tests won’t improve health outcomes. Patients want the best course of treatment for their conditions — a course driven by their doctor’s experience and expertise, not a price list of costly tests and procedures.

The inequities in fee-for-service are so great and health care costs so high, that we cannot wait until new models of care have been adopted to improve the system. We also cannot continue to follow Medicare’s Sustainable Growth Rate formula. It hasn’t worked as intended for almost two decades. It should be abandoned now.

The current rate of cost growth may have slowed, but at nearly $3 trillion a year — 18 percent of gross domestic product — spending on health care is still exorbitant. Our population is aging, chronic conditions are more prevalent and the leading edge of the baby boom generation is now entering the Medicare system.

Lawmakers, care providers and insurers must act now to change physician pay incentives to ultimately improve how care is delivered and ensure that the cost of that care is affordable for generations to come. That means moving away from fee-for-service now.

Bill Frist, a physician, is a former Republican senator from Tennessee and Senate majority leader, and Steven Schroeder is a professor of health and health care in the department of medicine at the University of California, San Francisco. The two men co-chair the National Commission on Physician Payment Reform, which has issued a report providing recommendations aimed at controlling health spending by changing the way doctors are paid.

This article was originally featured in Politico