Fee-for-service reimbursement will celebrate its 56th birthday next month. It has lived a long and increasingly rich life stymying numerous efforts to contain its voracious appetite for the health premium dollar. New and unprecedented changes in the healthcare economy, regulation, and technology may put fee-for-service on a very harsh diet if not kill it outright.
On July 30, 1965, President Lyndon B. Johnson signed into law legislation that established the Medicare and Medicaid programs by signing H.R. 6675 in Independence, Missouri, the home of former President Harry Truman who had tried unsuccessfully to implement federal health insurance in the 1950s. Truman was issued the first Medicare card during the ceremony. The budget for Medicare/Medicaid was approximately $10 billion and nineteen million individuals signed up the following year.
Since 1966, government-sponsored healthcare has grown to cover nearly 110 million people at an annual budget of $1.4 trillion.
Several factors have contributed to this astounding rate of growth. For one, Medicare and Medicaid have increased the number of eligible individuals. When it started, Medicaid insured people requiring cash assistance, predominantly the elderly and the poor. Low-income families, pregnant women, people of all ages with disabilities, and people who needed long-term care were soon added to the Medicare and Medicaid rolls. For example, in 1972, Medicare was expanded to cover the disabled, people with end-stage renal disease requiring dialysis or kidney transplant, and people 65 or older that choose Medicare coverage.
Medicare and Medicaid have also increased the services they cover, including prescription drug coverage, improved hospital and skilled nursing facility benefits, mammography, and an outpatient prescription drug benefit.
By the end of 2019, total per enrollee expenses for Medicare, Medicaid, and the Children’s Health Insurance Program stood at over $12,800 per enrollee per year, a 23-fold increase.
Besides increased eligibility and coverage, much of this astounding growth is due to fee-for-service reimbursement, the payment system introduced by Medicare that reimburses hospitals and physicians for each service they provide to patients. While fee-for-service has evolved over the years from its original cost-based approach, it remains a “perverse incentive” because it pays physicians and hospitals for more, rather than better, care. It has also proven extraordinarily resistant to change. Despite testing 54 alternative reimbursement models in the last ten years through the Center for Medicaid and Medicare Innovation (CMMI), only four have been permanently allowed by the Centers for Medicare and Medicaid Services (CMS).
As we move forward from 2021, four forces are converging on fee-for-service healthcare that threaten to end it, once and for all. These interrelated forces – COVID-19, consumerism, administrative burden, and mandatory provider participation in Medicare risk contracting – will make fee-for-service too complex and costly for payers, providers, and consumers to tolerate.
The COVID-19 pandemic exposed the weaknesses of fee-for-service healthcare in profound and permanent ways.
COVID-19 slammed fee-for-service providers and hospitals by shutting down in-person appointments and procedures and the revenue that accompanied them. Providers in value-based contracts fared much better as they had been ensured significant, if not full, payment for each of their patients in a value-based contract.
The pandemic also revealed enormous disparities in equitable access to healthcare among persons of color, the economically disadvantaged, and the disabled. Telemedicine brought healthcare to the patient, first by enabling audio and video teleconferencing instead of in-person visits and second, by increasing the testing and deployment of remote patient monitoring and in-home acute care delivery. Whether this “democratization” of healthcare delivery is not a short-term trend remains to be seen. Telehealth has proven very popular among patients, but some providers are jettisoning telehealth services for in-person care as the pandemic subsides threatening to disenfranchise many people for whom telehealth was the only access they had to the health system.
Consumerism is an overused term, but the fact remains that buyers of healthcare (individuals, employers, and government) want more value for their premium dollar. Regulations that free health data for consumer use will power the development of applications designed for a range of health markets.
Fee-for-service also makes an improved consumer experience a costly and arduous goal for payers and providers. Real-time prior authorization is possible but maintaining the data that enable it to work is much more difficult when one is forced to bear the burden of piecework that is fee-for-service. And compliance with price transparency and no surprise billing regulations is more achievable for payers and providers with value-based contracts than with their fee-for-service arrangements.
Essential to consumerism is that the individual has complete and unfettered access to all of their health data not only to see from which provider they can get the best value, but to switch easily from those providers who do not pass muster to those providers that do. This requires the standardization of data and exchange (interoperability), a prohibition on health care organizations blocking consumer access to their information (information blocking), and a shift in ownership and management of health data from the industry to the consumer.
Administrative burden is the third force bearing down on the industry. While the burden and risks of prior authorization on patient care are enormous, payers and providers continue to disagree, as they have for years, on how it should be alleviated. When you combine prior authorization reform, payer and provider price transparency regulations, and the ban on surprise patient billing, providers and payers may make the shift to value-based care to reduce the complexity of “paving the cow paths.” When reimbursement is fixed, covers the entire cost of a patient’s care, and providers are expected to manage financial risk, many providers may move from fee-for-service contracts to value-based contracts over the next several years.
The fourth and final force is CMS’s shift, through the Center for Medicare and Medicaid Innovation, away from voluntary participation in low or no risk payment models to mandatory participation by physicians and hospitals in full-risk contracts. While physicians have more experience than hospitals in managing risk, that experience is in contracts with significant limits on total financial exposure and narrow quality reporting. The improvements in health data quality, standardization, and exchange will produce better contracts by enabling near real-time cost and quality reporting, improved clinical risk-adjustment for varying populations of patients, and support for more effective coordination of care.
Fifty-six years is a long time to get used to fee-for-service as the primary payment model, but profound and concurrent changes in culture, the economy, in policy, and in technology will break the habit once and for all.
Denny Brennan, Executive Director
Please let us know what you think of our newsletter at firstname.lastname@example.org and look for our next issue. Thank you for your continued support and participation!
Meetings this month:
Want to learn more about any of these meetings? Email email@example.com
MHDC WebinarsNew this month, we're making our formerly private CIO Forum events public. Join us to learn about telehealth from Dr. Joseph Kvedar of Mass General Brigham on Monday, July 12 from 9-10:30am.
Missed any of our webinars in 2021? Click here to see what you've missed!
Interested in holding an MHDC webinar or have an interesting topic you'd like to present? Contact us at firstname.lastname@example.org
The Vantage Point Series
Join us for exclusive interviews with some of healthcare’s most recognized leaders as they reveal how and why they chose their careers, what they learned on their journey, and how to apply their insights to the everchanging future of healthcare.
Our next Vantage Point Series interview features John Glaser, PhD on July 22nd from 10am-noon.
Missed our previous Vantage Point Series interviews? You can find the recordings here.
Electronic Prior Authorization Initiative
This project is a prototype implementation that automates prior authorization transactions using the industry standard, open platform methods developed by the HL7 DaVinci Prior Authorization workgroup. This project will be compliant with the three related implementation guides which utilize open, FHIR based API exchange methods. This will allow each payer and each provider to implement a single prior authorization process and format for exchange so long as all of their exchange partners adhere to the same standards.
MHDC has secured funding for the ePA project thanks to the distribution of grants from the Massachusetts eHealth Collaborative. This is an important milestone that allows us to move forward with the execution of the Participant Agreements as each participant is eligible for implementation grants to support their efforts.
On June 7th MHDC and the Network for Excellence in Health Innovation NEHI co-hosted a webinar titled "Innovations in Automation of Prior Authorization: Tackling the Issues from a Multi-Stakeholder Perspective" featuring three separate prior authorization solution providers: Cohere Health, Olive/Verata, and Mettle Solutions. The webinar was attended by NEHI and MHDC members to learn and ask questions directly from the solution providers about how their solution(s) improve the processes of submitting and obtaining authorization for the specific healthcare services that require it. The most important discussion point as it relates to the automation of prior authorizations is the need for a single, standardized methodology and interoperability method so that we do not find ourselves with many disparate solution approaches on the payer side and the provider side that do not help alleviate the burden of working with individual payers and providers on a one-to-one basis. All three of these solution providers agreed with the use of the DaVinci exchange standards as is required for the ePA Prototype Project.
For more information email us at email@example.com.
Interested in webinars and online conferences through July? Here are some we recommend (they're free unless otherwise noted):
Have an upcoming event next month to suggest? Write us at firstname.lastname@example.org - no self-promotion please.
Patient Access/Provider Directory
LGBTQ+ Pride Month
LGBTQ+ Pride Month is a time to celebrate LGBTQ+ identities, progress, and contributions, learn about the history of this community, and also to highlight continued inequities and to advocate for LGBTQ+ rights. In recent months there has been a rise in anti-trans legislation, especially targeting trans youth and access to healthcare. This article discusses the issue from the perspective of a Boston Children’s Hospital pediatrician that works with trans youth.
Learn more about Pride Month:
Before we go, here's a reminder of upcoming data exchange deadlines from ONC and CMS (including the CMS rule that's currently frozen, as noted by *):
And that's it, folks. Loved it? Hated it? Have an idea for next time? Send us feedback and suggestions about this newsletter at email@example.com or send us feedback and suggestions about anything else at firstname.lastname@example.org.