By MATTHEW HOLT

In recent days and weeks, there have been three stories that have really brought home to me the inanity of how we run our health care system. Spoiler alert, they have the commonality that they all are made problematic by payment per individual transaction—better known as fee-for-service.

First, several health insurers who sold their reputation to Wall Street as being wizards at understanding how doctors and patients behave had the curtain pulled back to reveal the man pulling the levers was missing a dashboard or dial or three. It happened to United, Humana and more, but I’ll focus on Agilon because of this lovely quote:

“During 2023, agilon health experienced an increase in medical expenses attributable to higher-than-expected specialist visits, Part B drugs, outpatient surgeries, and supplemental benefits, partially offset by lower hospital medical admissions. While a number of programs have been launched to improve visibility, balance risk-sharing and enhance predictability of results, management has assumed higher costs will continue into 2024,” the company said in a statement

Translation: we pay our providers after the fact on a per transaction basis and we have no real idea what the patients we cover are going to get. You may have thought that these sharp as tacks Medicare Advantage plans had pushed all the risk of increased utilization down to their provider groups, but as I’ve be saying for a long time, even the most advanced only have about 30% of their lives in capitation or full risk groups, and the rest of the time they are whistling it in. They don’t really know much about what is happening out in fee-for-service land. Yet it is what they have decided to deal with.

The second story is a particularly unpleasant tale of provider greed and bad behavior, which I was alerted to by the wonderful sleuthing of former New Jersey state assistant director of heath benefits Chris Deacon, who is one of the best follows there is on Linkedin.

The bad actor is quasi-state owned UCHealth, a big Colorado “non-profit” health system. They have managed to hide their 990s very well so it’s a little hard to decipher how much money they have or how many of their employees make millions a year, but it made an operating profit last year of $350m, it has $5 BILLION in its hedge fund, and its CEO (I think) made $8m. It hasn’t filed a 990 for years as far as I can tell. Which is probably illegal. The only one on Propublica is from a teeny subsidiary with $5m in revenue.

So what have they been doing? Some excellent reporting from John Ingold and Chris Vanderveen at the Colorado Sun revealed that UC has been getting collection agencies to sue patients who owe them trivial amounts of money, and hiding the fact that UC is the actor behind the suit. So they are transparent on how much very poor people allegedly owe them, and come after them very aggressively, but not too transparent on how their “charity care” works. The tales here are awful. Little old ladies being forced to sell their engagement rings, and uninsured immigrants being taken to the ER against their will and given a total runaround on costs until they end up in court. Plenty more stories like it in a Reddit group reacting to the article.

What’s the end story here? UC Health gets a measly $5m (or a share of it) a year from all these lawsuits which is less than the CEO makes (according to a Reddit group—with no 990 it’s a little hard to tell).

Yes, all these patients are being billed or misbilled for individual procedures and visits. It makes people terrified of going to the doctor or hospital, and no rational health services researcher thinks that charging people a fee to use health care encourages appropriate use of care. Last month Jeff Goldsmith had an excellent article on THCB explaining why not.

Of course it goes without saying that if these patients were covered by some kind of a capitation, subscription or annual payment none of this cruelty or waste motion would be happening.

The final example is still going on.

Just over a year ago United HealthGroup, the $500bn market cap gorilla in America’s health care system, paid $13 Billion for Change Healthcare. Change was (and is) a giant in the business of revenue cycle management and claims processing. As Stat News’ Brittany Trang reports

Change ferries claims and payments between providers and insurers, and helps providers check on patients’ insurance information. Before Optum acquired Change in 2022, it served 1 million physicians, 39,000 pharmacies, 6,000 hospitals, and connected with 2,400 insurers.

United went to war with the DOJ and won in order to buy Change because it got them into the detailed flow of bills sent from providers (including pharmacies) to payers—presumably so they could get smarter about what’s going on out there. Well I suspect United is regretting it now. Last week Change got seriously hacked.

In response to the cyberattack last week, UnitedHealth unplugged Change’s connection to every hospital, medical office, and pharmacist that used it to execute one of those functions, whether those organizations interfaced with Change directly or through the complicated insurance claims bucket-brigade.

The complexity of the financial and clinical data flowing through Change is staggering even to those of us who had some idea what it did. But hospitals, doctors and pharmacies can no longer identify patients’ eligibility and more importantly can’t submit claims or get paid.

Why do we need “revenue cycle management” and “claims submission”?  Because of fee-for-service.

This is similar to the time in 2020 when Covid stopped hospitals and doctors seeing patients and submitting bills. Who was ok back then? Kaiser Permanente and other integrated “payviders” who get paid a flat amount per patient they take care of.

Plenty of other industries figure out a way around this. Netflix doesn’t charge per movie watched, my cable company charges me an outrageous amount for internet and TV and divvies it up among its suppliers, giving way too much to Fox News. Even phone companies have gone from pay per minute of each call to a bundled amount per month. Of course there are plenty of companies trying to unbundle this to charge more—as a soccer fan I am very conscious of this with different companies charging me to watch different competitions but none of them are charging per game watched!

But health care remains dead set on fee for service and there are plenty of companies like Change and those Colorado collection agencies that live precisely off this system. In the thirty plus years I’ve been looking at American health care none of the promise of value-based care has made fee-for-service less prevalent. In fact it’s usually just added to the complexity of it while using FFS as a base.

Why? Because in general, as Agilon and the other Medicare Advantage plans are discovering, if a provider gets paid for doing something to a patient, it’s pretty hard to stop them doing more of it.

Legendary Canadian health economist Bob Evans told me once that nothing that is regular is stupid. In other words if something keeps happening, there’s a reason behind it. In the case of fee-for-service in health care the reason is clear, and everyone—other than the dumbos paying for it–is in on the game. It’s just that the reason is stupid.

By KEN TERRY

(This is the second in a series of excerpts from Terry’s new book, Physician-Led Healthcare Reform: a New Approach to Medicare for All, published by the American Association for Physician Leadership.)

In January 2015, then Health and Human Services Secretary Sylvia Burwell announced lofty goals for the government’s value-based payment program. By the end of 2016, she said, 85% of all payments in the traditional Medicare program would be tied to quality or value, and 90% would be value-based by the end of 2018.

The government planned to tie 30% of Medicare payments to alternative payment models by 2017, according to Burwell, and hoped to reach the 50% mark by 2018. In March 2016, HHS said it had reached the 30% goal a year ahead of schedule, mainly because of the Medicare Shared Savings Program (MSSP).

More recent data on the value-based-care movement comes from the Health Care Payment & Learning Action Network (LAN), a public-private partnership launched in 2015 by the Department of Health and Human Services. The LAN reported in October 2018 that public and private payers covering 226 million lives, or 77% of insured Americans, had tied 34% of their payments to value-based care. According to the organization, only 23% of total payments had been value-based in 2016.A deeper analysis of the LAN data, however, shows that the vast majority of value-based payments—both in Medicare and in the larger healthcare system—were still limited to pay for performance, upside-only shared savings, and care management fees paid to patient-centered medical homes.

More recently, the Catalyst for Payment Reform, a nonprofit firm funded by payers, found that 53% of commercial payments to hospitals and doctors in 2017 could be classified as value-oriented. However, the report said, 90% of value-oriented payments were built on fee for service and just 6% involved downside financial risk—about the same as in 2012.

Without downside risk, most observers agree, providers will not significantly cut costs.Evidence to support this viewpoint can be found in data from the MSSP. In 2016, for example, ACOs in two-sided risk models accounted for only 10% of the ACOs in the MSSP, but generated almost 30% of the total savings. “The average ACO in a one-sided risk model saved $1.3 million against its benchmark,” noted an article about this trend. “The average ACO in two-sided risk models saved $4.5 million—over three and a half times greater savings.”

Stuck on Fee for Service

What is the evidence that the healthcare industry is moving from fee for service to risk-based arrangements? David Blumenthal, MD, president of the Commonwealth Fund, replies, “As I listen to people in the healthcare sector talk about the future of payment, most accept the premise that value-based payment and risk sharing are going to grow in prevalence. But the evidence for risk sharing is not as strong as the evidence for pay for performance. So, I think it’s an open question.”

David Muhlestein, chief strategy and chief research officer for Leavitt Partners, has studied ACOs and the evolution of risk. He says there has been an increase in the number of providers who are taking downside risk, either through two-sided shared savings or capitated models. “But for the vast majority of providers, this is still a small minority of their total revenue. Even if you’re fully capitated for 5% of your revenue, and the other 95% is fee for service, you’re going to optimize [how you do business] around the fee-for-service component, not on that 5% capitation. And that’s what we’ve seen: very few organizations have sufficient revenue through any level of risk that justifies making changes that cannibalize or in some other way hurt their fee-for-service revenue, which dictates their profitability.”

Slow Walking to Value-Based Care

In the view of Grace Terrell, MD, the former CEO of Cornerstone Medical Group in North Carolina and a board member of the American Medical Group Association, hospitals and healthcare systems across the country are “slow walking” toward value-based care. “Some hospitals are very good at fee-for-service medicine,” she notes. “It’s really hard to do these changes, and the slower it goes, the easier it feels to them.”

She offers a startling example of how some hospitals have reacted to CMS’s Value-Based Purchasing program. A hospital chief medical officer privately told her that it was not financially worthwhile to reduce readmissions. “He said, ‘We’ll take the risk of the 30-day readmissions penalty [from Medicare], because we’ll make so much from our continuous churn [of inpatient beds] that it’s not worth bothering with.’”

Healthcare consultant Michael La Penna is not surprised by this story. Although such a sentiment would never be voiced in public or at a hospital board meeting, he says, hospitals’ financial decisions tend to be based on how a particular course of action affects their throughput and occupancy rate. If they have to make a choice between hiring two new ER doctors to increase admissions or hiring nurses to manage high-risk patients at home, for example, they’ll choose the ER physicians, he points out.

Hospitals are slow walking to value-based care, he says, because they need to fill beds, and the potential rewards from shared savings or risk contracts aren’t enough to make up the difference if they reduce their admissions.

Muhlestein agrees that hospitals are taking their time in transforming their business model. “There’s the view that the future belongs to these risk-based models, where you need to manage patients appropriately,” he explains. “Then there’s the present reality that fee for service dictates whether you keep the lights on. The health systems talk about better ways to manage high-cost, high-risk patients, but at the same time they continue to play the fee-for- service game they’re good at.”

Despite the pressure from some payers to assume risk, he adds, “It’s just a reality that lowering average length of stay while improving your daily census and negotiating better contracts with payers is what moves the needle in the short-term, and that’s where the focus is.”

Ken Terry is a journalist and author who has covered health care for more than 25 years.