CMS Is Not Solomon When It Comes To Healthcare

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The Center for Medicare & Medicaid Services is unfortunately, perhaps unintentionally, creating harm. Nowhere is this more evident than in the current arguments between the American Hospital Association and America’s Hospital Insurance Plans regarding site-neutral payments. The AHA strongly opposes site-neutral payment policies, arguing that the resulting reimbursement cuts would threaten patients’ access to care. On the flip side, AHIP argues that these policies are necessary to protect patients from excessive out-of-pocket costs without a corresponding increase in the quality of care.

The current ‘shouting match’ is dangerous. Both organizations’ arguments are grounded in the status quo and current payment model. And largely because of that, neither side should ‘win’–although both bring a perspective that needs to be heard. CMS has added to the problem by adopting an ineffective, tactical, short-term way to adjudicate competing industry interests when it comes to reimbursement. The agency gives in to the arguments of one side and then over time appeases the arguments of the other. Predictably, nothing really changes. Each side scrambles to ‘win’ a particular battle and lock in their advantage in the regulatory war. CMS, despite expending considerable effort and dollars, doesn’t move the needle because it has no bigger vision.

We need to come at the problem very differently if we ever expect to get meaningful healthcare access and clinical solutions for American consumers. It’s unlikely that CMS, and Congress for that matter, have the wisdom to see that or to understand what an alternative vision might be. Obviously, ‘splitting the baby’ won’t work; neither will a more ordinary compromise on the ‘facts.’

The argument surrounding site-neutral payment is a microcosm of long-standing industry issues. Both sides are defending their constituents in the context of an existing, broken FFS model that almost all verbalize should have been retired a long time ago. That lawyers would defend their clients’ positions is entirely understandable and reflects the American system of justice at its best.

But given that each side wants to hold onto the status quo, it is the American patient-consumer and taxpayer that loses. CMS, the public and Congress need to understand this. As I wrote about in Bringing Value to Healthcare, CMS reimbursements have lagged behind the rate of inflation for years, eroding the financial base of healthcare delivery organizations and independent physicians. Medicare typically pays $0.82 for every dollar of service that’s delivered. No organization in any industry can stay in business if it loses money on every sale. And commercial insurers are loath to make up the difference. CMS should not impose undue hardship on delivery organizations while putting money in the pockets of commercial insurers. And providers should have the freedom to treat their patients in the facility most appropriate for what they need, not in the facility where the organization makes the most money.

Unfortunately, CMS is operating in the current model while espousing the desire to get to a different one (i.e., value-based care). This future model is best characterized by transparency in cost/quality, accountability for outcomes across the continuum that are tied to payment, and create the basis for consumer choice and real competition.

For over 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 effort to change the existing paradigm—moving from a usual and customary rate retrospective payment system to a DRG prospective payment system. The former was accompanied by steady increases in hospital costs for a whole host of procedures. Hospitals were set up to collect relevant charges and send them off for predictable and relatively quick payment by CMS. DRGs forced these same hospitals to anticipate what the charges would be for similar ‘diagnosis groups’ which were then modified to reflect patient acuity and costs in various geographies across the country. CMS was convinced 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 real health outcomes, transparency in either cost or quality, focus on the continuum of care, or real data-driven basis for competition. So, predictably, the new payment model got more complex over time. The AHA together with the American Medical Association advocated for more complex, refined codes to ensure nuances in care would be adequately reflected in reporting and associated with proper payment.

It should be noted that the AMA had a vested interest in the game. They create codes which drive differential payments for their members and the hospitals. Over time the complexity has increased dramatically, creating a whole workforce paid to scour the codes, teach physicians proper coding to ensure proper reimbursement, etc. Most commercial insurers rely on the same coding system and, like their counterparts in CMS, want to ensure proper coding and billing. Unfortunately, there is no universal billing system, something the insurance industry fought bitterly against for years. So, the hospital is forced to spend precious time and divert dollars from patient care to overseeing coding, billing and reimbursement accuracy. It is only natural that resources should be devoted to this enterprise. After all, clinicians are working hard to deliver what they believe to be optimal care. It costs real money to run healthcare facilities regardless of type, and they should be reimbursed at a fair market rate for their services.

On the other side of the equation is the mirror apparatus that CMS and commercial insurers have evolved. They, too, have built an impressive infrastructure of coding, reimbursement and denial specialists. While it is understandable that payers—whether they are public or private—want to audit the bills that they are being asked to pay, the bureaucratic labyrinth that exists is nothing short of breathtaking. And this too drains the coffers of dollars that might otherwise go to pay for meaningful services or perhaps to chip away at the notorious budget deficit to reduce taxpayer burden.

While a system of checks and balances is good, the apparatus that is here is crushing for all who encounter it—perhaps except for the bureaucrats whose job it is to feed it. Even patients who need to navigate this on the periphery typically tear their hair out at the magnitude of its opaque nature with few around to help them out of the quagmire.

But it’s not just the complexity that has evolved over time that is at issue here. More importantly, it’s a fundamental and inherent distrust that is most insidious and will get in the way of real solutions. Even before DRGs, an underlying hostility existed between payers and healthcare providers. For payers, the issue was how often and how egregiously would/could delivery organizations up-code and therefore up-charge. For delivery executives, individual physicians, and often patients, it was how many ways can insurers say no to needed treatments and deny or delay (legitimate) claims. These polar positions have improved in some circles and gotten more entrenched in others.

The fact that CMS never connected payment to outcomes when it introduced DRGs in the mid-1980s remains at the root of the problem, which reflects fundamentally misaligned incentives. Ironically, the problem isn’t just FFS, although the adherence to piecemeal episodic delivery adds to the dysfunction. Indeed, the introduction of Health Maintenance Organizations during that same decade illustrates very clearly what happens when incentives are misaligned. Those who could make more money by not providing clinically needed services were incented to do so, just like those who performed 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 get meaningful change any time soon. Instead, we spend money moving around the proverbial deck chairs on the Titanic when we should be coming to the table with proven, viable alternative solutions in proven models. We do know how to do this. Lack of vision keeps us stuck.

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