Fee for service is a terrible way to pay for health care - STAT - STAT

Amid the nightly roar of applause for health care workers courageously caring for Covid-19 patients, many of them are losing their jobs.

The crisis behind quarantine clapping — a communal show of gratitude for the workers braving the pandemic — has overwhelmed intensive care units in hospitals located in Covid-19 hot spots like New York, Boston, Detroit, and Seattle. At the same time, it has also tanked demand for primary care, dentistry, dermatology, and other clinical services. Why? Many of those in need of those services are among those also at greatest risk of contracting the virus that causes Covid-19.

In March, 43,000 health care workers were laid off. That ballooned in April to more than 1.4 million, mostly from the offices of dentists and primary care physicians. In late May, Becker’s Hospital CFO Report listed more than 266 hospitals that had announced they would furlough employees. One-quarter of rural hospitals are at high risk of closure, even though more than 80% of counties have reported positive cases of Covid-19.

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Our health care system now faces both a scarcity of workers on the front lines of Covid-19 and a scarcity of patients just about everywhere else.

The financial distress of hospitals during the lockdown highlights their reliance on a constant flow of patient visits and billable services to stay in business. This says a lot about their incentives: a hospital bankrupted by a decline in treatments provided is a hospital with a strong motivation, financially, to maximize those treatments — necessary or not — once America reopens.

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For too long, U.S. health care providers have operated within the grip of a fee-for-service model that incentivizes billable treatments over healthy and efficient outcomes. At the same time, insurance companies contest these fees with denials of coverage and requirements like prior authorization. Each year, this trillion-dollar tug-of-war leaves too many patients and their families with unexpected bills for unexpected treatment.

With this misery comes enormous waste. Health care has become busier with its paperwork than its practice: The U.S. wastes more money on billing and administrative costs than some nations spend on health care altogether: 8% of each U.S. health care dollar goes to administration, compared to 3% among comparable nations. It costs more than $99,000 in expenses per year per physician just to bill for their services.

There is a better way: Instead of funding medical groups by paying the bill after treatment, pay doctors and hospitals upfront to keep their patients healthy in the first place.

Consider, for example, the difference between most clinics in the U.S. and those run by ChenMed, founded in Miami and now with more than 70 clinics in the eastern U.S., or Iora Health, founded in Boston, with nearly 50 locations across the country. Instead of getting paid per visit, per procedure, these medical groups have embraced new ways of getting paid — what Dr. Chris Chen, the founder of ChenMed, refers to as a “subscription model” by which Medicare sets an annual budget per patient and pays the doctors a set amount monthly to provide care. In this Medicare Advantage model, patients have a choice whether to renew each year, and Medicare is also a stickler for measuring quality of care and patient satisfaction.

Instead of furloughing employees, ChenMed and Iora Health have been working hard to keep their subscribers. With their revenue intact, they’re not lobbying for bailouts. And instead of reducing services, they are ramping up, enhancing telehealth, supporting home delivery of food, and keeping their clinics open for urgent care visits.

This subscription payment model offers three main advantages to traditional fee-for-service:

First, it maintains the right incentives for clinicians to provide the best care, particularly by investing in prevention and primary care. With the right models, practices like these can save 25% to 30% on health care costs, mostly by avoiding hospitalizations, and improve the lives and extend the independence of elderly patients.

Second, it reduces the massive and unnecessary administrative burden that contributes to burnout rates among physicians of nearly 50% while adding little value to health care.

Third, it provides a reliable source of funding that can help hospitals and medical groups weather lockdowns like what we are experiencing during the Covid-19 pandemic, limiting the incentive these groups may have, like any other business strapped for income, to be tempted to overcompensate for lost revenue with unnecessary care.

No one opens their window each night to applaud the size of a hospital bill. What we support is the commitment and success of all the workers who are keeping us healthy and safe. Our billing system should do the same.

Vivian S. Lee is a physician, president of health platforms at Verily Life Sciences, senior lecturer at Harvard Medical School, and author of “The Long Fix: Solving America’s Health Care Crisis with Strategies that Work for Everyone” (WW Norton, May 2020).

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