Policymakers are under increasing pressure to control health care spending and protect Medicare for future generations as a result of ongoing worries about rising health care expenses and the impending financial insolvency of the Medicare programme. The programme could be maintained and the health care system and the way we pay for medical services might be moved in a more sustainable path with the help of one policy adjustment. And this health care reform is astonishingly easy to implement, unlike most others.
The government-run health insurance programme for the elderly and younger individuals with disabilities, Medicare, is used by close to 64 million Americans. The majority of them—those covered by standard Medicare—are paid under a “fee-for-service” system, which the government employs for about half of them. For more than 10,000 different services, each with its own unique code, the Centres for Medicare and Medicaid Services (CMS) pay physicians separately under this approach. The annual Medicare Physician Fee Schedule (MPFS) is based on this.
The recommendations of the Specialty Society Relative Value Scale Update Committee, or “RUC,” a small group of physicians chosen by the American Medical Association, have significantly influenced these reimbursement rates for the past three decades.
The issues with this system are numerous.
For starters, there is a blatant conflict of interest because doctors have a financial incentive not to advocate for rate reductions because they have a say in how much CMS pays them for the services they render (CMS has historically adopted the vast majority of the RUC’s recommendations). The MPFS must balance its budget, so charge increases for some services must be compensated by fee decreases for other services. Primary care services, which are obviously vital, have been relative devalued over the past few decades as a result of recommendations by the RUC, which is dominated by specialists.
More importantly, the reimbursement rates don’t necessarily reflect the true value of the treatment to the patient because they are primarily based on estimations of the cost to provide the service. This encourages the delivery of more expensive services, such tests and procedures, while discouraging the delivery of affordable services, like evaluation and care coordination, even though they may be more beneficial.
Given that most commercial insurers base their rates on the MPFS, this inflationary situation raises prices not only for Medicare but for the entire health care system. We won’t ever be able to reduce expenditure and get more for our health care dollars if we continue to rely on the administrative pricing and fee-for-service payment models. Of course, we could keep trying to improve the fee-for-service system as we have for decades and hope for a better outcome, but this is not the answer and will not bring us any closer to a truly value-based system.
Thankfully, there is a different method of paying for medical services that is already well-liked as a component of the Medicare programme. Private health insurers who participate in Medicare Advantage, also known as Medicare Part C, compete by submitting bids to CMS based on their estimation of the price to deliver the hospital and physician services covered by regular Medicare.
The majority of these plans also provide extra benefits like no-cost prescription drug coverage, access to vision and dental care, and even a fitness benefit. If the proposal is approved, private insurers will be given a set sum per year to cover the services included in the plan and no more in place of the government paying for each specific treatment.
The burden falls on the private plans, not Medicare or the taxpayer, if they are ineffective and spend more than the bid. This encourages them to offer high-quality care at an affordable price. In fact, when it comes to many quality indicators, Medicare Advantage performs better than regular Medicare, especially those that have to do with preventative care and avoidable hospital admissions.
The health care payment system needs to put more emphasis on what is already effective in order to cut back on wasteful expenditure and protect Medicare for the long term. Healthy competition offers incentives for high-value care, and the federal government must be freed from the responsibility of determining the costs of many different services. These changes might be hastened by making Medicare Advantage the standard enrollment choice for new enrollees.
