(Bloomberg) — Killing off the old way of paying for U.S. health care, as it turns out, won't require new legislation, executive orders or a raft of regulations. All the Obama administration needs is time.
In two years, the government wants 30 percent of payments from Medicare going to doctors and hospitals participating in programs that force them to work together, worry about whether patients actually get better, and in some cases, pay penalties if they fail. By 2019, the fraction would rise to 50 percent of payments under Medicare, which covers about 50 million elderly and disabled people.
If that all sounds like common sense — maybe even a pretty modest goal — that's because it is. But for most of Medicare's 50-year history, that wasn't how the bills got paid. Hospitals and doctors earned money when they performed a service. It's called, literally, "fee-for-service," and it has nothing to do with whether the patient got better, whether some other kind of care might have been more effective, or — even worse — whether the service was necessary at all.
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Instead of laws and regulations, the Obama administration is relying on a few programs under Obamacare that are growing and many more, outside of the government, that probably would have happened regardless. Change in the industry has been fueled by growing public disgust with the nation's $3 trillion annual health-care bill and the fee-for-service system that drives it.
"Medicare is aligning with what is already working in the private sector to move away from fee-for-service," said Justine Handelman, vice president for legislative and regulatory policy at the Blue Cross and Blue Shield Association, which represents insurers. "The private sector is further ahead than Medicare right now."
'Reward quality'
That's not to say the administration's announcement is meaningless, much less that everyone in the health-care world is pleased. Medicare is the largest single buyer of health care services in the United States, and anything it does to discourage fee- for-service payment will "accelerate what's happening to reward quality and outcomes versus volume" elsewhere in the system, Handelman said.
While banalities expressing cooperation and appreciation rang out from the offices of health-trade groups around Washington on Monday, it was possible to read between the lines. Too much money has been made from fee-for-service for its execution to proceed without a peep of protest.
About two dozen health-care executives and consumer advocates sat around a conference table with Health and Human Services Secretary Sylvia Mathews Burwell this morning, at her agency's Washington headquarters, to hear her plans. Reporters were let inside at the end of the meeting.
Seating arrangements
At the head of the table, to Burwell's immediate left: Karen Ignagni, the chief executive officer of America's Health Insurance Plans, the industry's main lobby group. To her immediate right: Janet Marchibroda, executive director of the CEO Council on Health and Innovation, a representative of large employers.
The people who pay the bills, in other words.
Further down the table sat officials from the American Medical Association and the American Hospital Association: the people who send the bills. A couple of nonprofit health-care systems got seats, as well as UnitedHealth Group Inc., Anthem Inc., and Aetna Inc. For-profit hospitals, which have largely rebuffed Obamacare's payment experiments, weren't in attendance.
Chip Kahn, CEO of the Federation of American Hospitals, which represents for-profits, issued a statement saying he was "gratified" by Burwell's announcement. His statement also carried a warning, though.
The government must "ensure that only reforms proven to be efficient and effective are put in place," he said. Hospitals have seen $122 billion in cuts to their Medicare payments since 2010 and "further cuts would undermine our ability to invest in delivery system innovations needed to continue this trend."
Rest in peace, fee-for-service. Just don't expect the health care industry to pay for the funeral.
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