Paying the Price of a Fractured System

Health care costs in the United States are high and projected to rise. In an effort to lower health care spending, many policymakers have proposed dismantling the fee-for-service based payment model to reduce financial incentives for doctors to over-utilize health care resources. These proposals have led to bundled payment plans and accountable care organizations that reward efficient and high-impact care. However, while these organizations and plans have been successful in reducing costs in some spheres of health care, such as joint replacements, they have been far from a silver bullet in the decades since they were introduced.

In a recent article,  authors introduce us to three countries that are able to successfully control spending within their fee-for-service systems. They argue that, in comparison to these three countries, it is not our volume of service that is driving health care costs, but instead, higher prices in the United States. Instead of focusing on how to bundle health care payments to drive down resource utilization, we should focus on decreasing prices of services and goods. The article examines how healthcare is accessed and how fees are determined in Germany, France, and Japan. All three countries have universal health care financed by income-based health contributions, private-sector health care providers, limited competition between insurance companies, and centralized fee negotiations between the government and physicians. As a result of their fee negotiations, physicians in all three countries earned a lower income than American physicians.

When considering our multipayer health care system, divided between public and private entities, this paper highlights challenges with organizing centralized fee negotiations in the United States. For one, there is a huge disparity between private insurer payments and Medicare payments. If private insurer payments were lowered to meet Medicare rates, hospitals and physicians may not remain financially viable. On the other hand, if Medicare rates were increased, the US may struggle to fund existing coverage. Furthermore, given the amount of student loans and years of schooling that physicians have accrued, one could anticipate significant pushback by physician groups for drastic reductions in payment. 

While many challenges must be navigated, reducing prices is a promising mechanism to reduce the cost of treatment and administration in health care. 

This Health Policy Journal Club review is written by Michelle Dai as part of our collaboration with the Health Policy Journal Club at Baylor College of Medicine where she is a medical student.

Abstract

Although the US has the highest health care prices in the world, the specific mechanisms commonly used by other countries to set and update prices are often overlooked, with a tendency to favor strategies such as reducing the use of fee-for-service reimbursement. Comparing policies in three high-income countries (France, Germany, and Japan), we describe how payers and physicians engage in structured fee negotiations and standardize prices in systems where fee-for-service is the main model of outpatient physician reimbursement. The parties involved, the frequency of fee schedule updates, and the scope of the negotiations vary, but all three countries attempt to balance the interests of payers with those of physician associations. Instead of looking for policy importation, this analysis demonstrates the benefits of structuring negotiations and standardizing fee-for-service payments independent of any specific reform proposal, such as single-payer reform and public insurance buy-ins.

PMID: 33136495

Gusmano, MK, et al. Health Affairs. 2020; 39 (11): 1867-1874.