NCPA - National Center for Policy Analysis


July 22, 2009

We pay for health care one service at a time.  There's a bill for an office visit, for a blood test, for an X-ray, for a hospital bed, a specialist and so forth.  There's fairly broad recognition that this fee-for-service way of paying for care is a big part of the problem because it rewards doctors, labs and hospitals for more stuff rather than making -- or keeping -- the patient well.  It can make for some perverse incentives, says columnist Jim Landers.

If medical providers keep patients healthy enough to stay out of the hospital, they lose money under the fee-for-service system, said Andrew Dreyfus, an executive vice president with Blue Cross Blue Shield of Massachusetts, but the system "rewards treatments for infections acquired in hospitals."

How much money could be saved by turning the payment system around?

  • Peter Orszag, director of President Barack Obama's Office of Management and Budget, argues that health spending could be cut by a third -- more than $700 billion a year -- if doctors and hospitals coordinated patient care for quality and efficiency.
  • That finding is supported by research done at the Dartmouth Institute for Health Policy in New Hampshire.

However, John Goodman, President, CEO and the Kellye Wright Fellow with the National Center for Policy Analysis, says the savings from Orszag's approach would be far less. 

Goodman agrees that the current payment system gets the incentives wrong.  To save money, he recommends:

  • Letting doctors devise new payment approaches to do more with less bureaucracy.
  • Giving patients more financial responsibility -- and more information -- so they would have an interest in cost as well as quality.

Source: Jim Landers, "Health care system can ill afford to continue with fee-for-service," Dallas Morning News, July 22, 2009.


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