Alternative Payment Models, Teeth, and Tires

February 13, 2017 at 10:11 AM Leave a comment

Does the provider lose money making repairs, or does he make money?

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There is a lot of talk in health care these days about paying differently for services.  Like any other industry, we have our jargon: fee for service (FFS), pay for performance (P4P), bundles, capitation, population payment.  All of this is confusing for the average American, and understandably so.

But no matter what we call it, there is a big difference between various ways of paying for health care.  It’s actually not that different from how we buy stuff in other parts of our lives.  This came home to me recently when my wife was in two situations:

  • First, when she recently went to a new dentist to get a teeth cleaning, the dentist did a thorough exam. She then offered that if Marti wanted it, she would be happy to drill out some old fillings to see if they were likely to fail soon.  Only by drilling them out could she be sure that the fillings were still sound or not.  If there was a problem, she could refill the cavity or replace the whole tooth with a crown.  My wife had no symptoms then and still doesn’t.
  • She also recently went into the local tire store where she’d bought a set of four tires a few months ago, with a warranty. There was a screw in one of the tires (we have a lot of remodeling going on in our neighborhood).  The technician looked at it, and after examining the screw and removing it told her that there was no leak caused by the screw, and she was good to go.  No tire repair or replacement needed.

Quick quiz: which practitioner was operating on FFS, and which one was operating on a bundled payment?

If you said the first was FFS and the second a bundle, you get a gold star.  The fundamental difference is that the first proposed transaction would have resulted in the dentist getting a fee for the work, maybe over a thousand dollars if it involved a crown.  The second transaction would have been covered under a warranty, and so would have cost the tire shop time, materials, and labor, but would not have generated a new payment.  This is the fundamental difference between FFS and bundles or capitation.  Right down to brass tacks, in fee for service, every new service draws a new fee; in bundles or capitation, some or all services don’t generate new revenue.  I often think I can spot FFS behavior and capitated behavior without knowing the financial arrangement, just from how the practitioner behaves in the transaction.  For example, if a shop offers to do a “free inspection”, I think you can almost always expect them to come back with a recommended purchase of something from them.  This is classic FFS behavior.  Conversely when someone is capitated or works under a bundled payment, they give a lot more thought to the question, “Is this really necessary, or could we watch and wait to see if it’s really a problem?”

There are big implications for our health care system in the move away from FFS to bundles and capitation.  I personally favor the latter, because I think it’s just too easy for American providers to order and reorder things without consideration for the financial consequences to the payer, which is increasingly the patient himself.  Even if the patient isn’t directly responsible for the bill, someone pays for it, and that usually means the collective we, whether through insurance or government programs.  Most people in health care reform think this dynamic is one of the reasons we spend twice as much as most countries and get poorer results: the FFS system incents people to do more, not better.

So when you go see your provider, which do they seem more like, the dentist or the tire shop?  More importantly, which do you want them to resemble more?

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