CMS is not Salomon when it comes to healthcare

Unfortunately, perhaps unintentionally, the Center for Medicare & Medicaid Services is causing harm. Nowhere is this more evident than in the current discussions between the American Hospital Association and America’s Hospital Insurance Plans over location-neutral payments. The AHA is strongly against this location-neutral payment policies, arguing that the resulting cuts in reimbursements would jeopardize patients’ access to care. On the other hand, argues AHIP that this policy is necessary to protect patients from excessive out-of-pocket costs without correspondingly increasing the quality of care.

The current ‘shouting match’ is dangerous. The arguments of both organizations are based on the status quo and the current payment model. And largely for that reason, neither side should “win” – even though both bring a perspective that needs to be heard. CMS has compounded the problem by using an ineffective, short-term tactical way to advance competing industry interests when it comes to reimbursement. The agency gives in to the arguments of one side and then over time calms down the arguments of the other side. Predictably, nothing actually changes. Each side is trying to “win” a particular battle and secure their edge in the regulatory war. CMS, despite spending significant effort and dollars, is not moving the needle because it does not have a bigger vision.

We must approach the problem very differently if we ever expect meaningful access to healthcare and clinical solutions for American consumers. It is unlikely that CMS, or Congress for that matter, has the wisdom to see that or understand what an alternative view might be. Obviously ‘splitting the baby’ won’t work; neither does a more ordinary compromise on the ‘facts’.

The argument around location-neutral payment is a microcosm of long-standing problems in the sector. Both parties are defending their voters in the context of an existing, broken FFS model that almost all of them should have retired long ago. Lawyers defending their clients’ positions is completely understandable and reflects the American legal system at its best.

But since both parties want to maintain the status quo, it is the American patient-consumer and taxpayer who lose. CMS, the public and Congress need to understand this. As I wrote about it in Adding value to healthcareCMS reimbursements have lagged behind inflation for years, eroding the financial base of healthcare organizations and independent physicians. Medicare usually pays $0.82 for every dollar of service provided. No organization in any industry can survive if it loses money on every sale. And commercial insurers don’t want to make up the difference. CMS should not impose undue hardship on delivery organizations while putting money in the pockets of commercial insurers. And healthcare providers should have the freedom to treat their patients in the setting that is best suited to their needs, and not in the setting where the organization makes the most money.

Unfortunately, CMS is operating in the current model while harboring a desire to move to a different model (i.e., value-based care). This future model is best characterized by cost/quality transparency, accountability for outcomes across the continuum related to payments, and creates the foundation for consumer choice and true competition.

For more than 40 years, CMS has been desperate to bend the so-called cost curve in healthcare. The introduction of diagnosis-related groups in the mid-1980s was a dramatic attempt to change the existing paradigm: the transition from a usual and customary retrospective payment system to a DRG prospective payment system. The former has been accompanied by steady increases in hospital costs for a range of procedures. Hospitals were set up to collect relevant charges and forward them for predictable and relatively prompt payment by CMS. DRGs forced these same hospitals to anticipate costs for comparable “diagnosis groups,” which were then adjusted to reflect patient acuity and costs in different regions across the country. CMS was confident that DRGs would usher in a new era of cost reduction. Some commercial insurers followed suit.

However, as I have written elsewhere, in neither payment model was there any connection between payment and actual health outcomes, transparency in costs or quality, focus on the continuum of care, or true data-driven basis for competition. So predictably, the new payment model became more complex over time. The AHA, along with the American Medical Association, advocated for more complex, refined codes to ensure that nuances in care would be adequately reflected in reporting and associated with appropriate payment.

It should be noted that the AMA had a vested interest in the game. They create codes that allow differential payments for their members and the hospitals. Over time, the complexity has increased dramatically, creating an entire workforce that is paid to sort through the codes, teach doctors proper coding to ensure proper reimbursement, etc. Most commercial insurers rely on the same coding system and, like their CMS counterparts, want to ensure proper coding and billing. Unfortunately, there is no universal billing system, something the insurance industry has fought bitterly against for years. So the hospital is forced to spend valuable time and dollars on patient care monitoring the accuracy of coding, billing and reimbursement. It is only natural that resources are devoted to this endeavor. After all, doctors work hard to provide what they believe to be optimal care. It costs real money to run healthcare facilities, regardless of type, and they should be compensated for their services at a fair market rate.

On the other side of the equation is the mirror device that CMS and commercial insurers have developed. They too have built an impressive infrastructure of encryption, refund and denial specialists. While it is understandable that payers – whether public or private – would want to control the bills they owe, the existing bureaucratic labyrinth is nothing short of breathtaking. And this, too, depletes the treasury of dollars that could otherwise be used to pay for meaningful services or perhaps eliminate the infamous budget deficit to reduce taxpayer burdens.

While a system of checks and balances is good, the apparatus here is crushing to everyone who touches it – perhaps except the bureaucrats whose job it is to feed it. Even patients who have to deal with this on the periphery usually end up tearing their hair out due to the sheer size of its opaque nature, with few people around to help them out of the morass.

But it is not just the complexity that has evolved over time that is under discussion here. More importantly, it is a fundamental and inherent distrust that is extremely insidious and will prevent real solutions. Even before DRGs, there was an underlying animosity between payers and healthcare providers. For payers, the question was how often and how blatantly delivery organizations would/could up-code and thus increase costs. For managers, individual doctors and often patients, the question was how many ways insurers can say no to necessary treatments and refuse or postpone (legitimate) claims. These polar positions have improved in some quarters and become more firmly established in others.

The fact that CMS never linked payments to outcomes when it introduced DRGs in the mid-1980s remains the root of the problem, which reflects fundamentally misaligned incentives. Ironically, the problem is not just FFS, although adherence to piecemeal episodic delivery increases the dysfunction. The introduction of healthcare organizations in the same decade clearly illustrates what happens when incentives are not properly aligned. Those who could make more money from it not Providing clinically necessary services was incentivized to do so, just as those who provided more services under FFS could do better financially by doing more.

So unless and until CMS, Congress, and the public get a glimpse of what’s really going on, we won’t see meaningful change anytime soon. Instead, we spend money moving the proverbial deck chairs on the Titanic, when we should be coming to the table with proven, viable alternative solutions in proven models. We know how to do this. Lack of vision causes us to get stuck.