Global Amnesia: Embracing Fee-For-Non-Service—Again

Let’s hope that Orwell’s memory hole remains in good repair. As 1984 fans will recall, that appliance incinerated reminders of things more conveniently forgotten. Today we need it to cleanse memories of managed care’s profit-driven abuses, so we can proceed, unimpeded by history, with accountable care organizations (ACOs) and bundled payment—the linchpin of reforms recommended by the Society of General Internal Medicine (SGIM)’s National Commission on Physician Payment Reform (and endorsed, in this issue of JGIM, by Drs. Ho and Sandy1). We support The Commission’s calls for rebalancing compensation for cognitive vs. procedure-related work, and reforming the Relative Value Scale Update Committee (RUC) and Medicare’s sustainable growth rate (SGR). But its main prescription echoes the 1971 “Health Maintenance Strategy” proposal that ushered in the managed care fiasco. Back then, Ellwood and colleagues proffered health maintenance organizations (HMOs) as the market-based alternative to national health insurance.2 They argued that fee-for-service “works against the consumer’s interest … the greater the number of contacts and days used, the greater the reward to the provider.” Their solution: HMOs paid “a fixed annual fee… The economic incentives of both the provider and the consumer are aligned…[with] A performance reporting system of proven reliability…[providing] accurate information on the comparative performance of alternate sources of health care” and “surveillance of the characteristics of populations served and services provided” to guard against cherry-picking and care denials. That same year president Nixon made HMOs the centerpiece of his healthcare agenda, because (as captured on tape) “this [HMO strategy] is a private enterprise one… the incentives are toward less medical care, because the less care they give, the more money they make.” Employers and insurers soon followed Nixon’s lead, and by the mid-1980s, many providers rushed to create their own HMOs. But egregious abuses followed. Headlines blared; patients sued over vital services denied; and HMO whistle-blowers told horrifying tales of office celebrations triggered when reviewers discovered loopholes allowing the denial of transplants. Physicians were pressured to withhold care, and to hide that pressure from patients; bonuses of up to $150,000 annually were offered to doctors who minimized specialty referrals, inpatient care, etc.3 Our protest of those incentives, and a contract provision forbidding their disclosure (a “gag clause”) led to “delisting”. Award-winning physicians—who often attract unprofitably sick patients—were also delisted. An academic leader admonished physicians: “[We can] no longer tolerate having complex and expensive-to-treat patients encouraged to transfer to our group.”4 In the end, Americans concluded that fee-for-NON-service was even worse than fee-for-service. HMOs lived on, but retreated from shifting risk to providers, relying instead on mother-may-I-style cost containment, like pre-authorization. Now SGIM’s Commission has joined the growing policy bandwagon to reanimate the HMO strategy. There are semantic changes—ACO has replaced HMO, and when insurers drop expensive doctors (e.g. the 1,000-member Yale Medical Group5), it’s called “network optimization” not “delisting”. In a new twist on gag clauses, today’s ACO patients (e.g. seniors in Medicare’s Pioneer ACOs) aren’t told they’re enrolled. But the diagnosis and prescription are unchanged. As in 1971, fee-for-service is the culprit. A shift to “bundled payment, capitation, and increased financial risk sharing.” is the solution, with “risk adjustment… to avoid physicians and other providers cherry-picking the healthiest patients”; and “quality measures… to assure that evidence-based care is not denied as a cost-saving mechanism.” Twentieth century risk adjustment and quality monitoring were overmatched by HMOs’ gaming and deception. Despite additional decades of work to devise bullet-proof risk adjustment, gaming remains so powerful and pervasive that cost and quality rankings are often distorted, or even inverted. No solution is on the horizon.