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Getting The Price Right: How Some Countries Control Spending In A Fee-For-Service System [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Dr. Michael Gusmano, Research Scholar at The Hastings Center and Professor at Rutgers University, to discuss a study he authored that looked at how payers and physicians engage in structured fee negotiations and standardized prices in other countries where fee-for-service is the main model of outpatient physician reimbursement.  

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Highlights of this episode include:

  • Background on the study authored by Dr. Gusmano that looked at how fee-for-service models work in Germany, France, and Japan.
  • Details on the research methods used and data researched for the study. 
  • How fee negotiations and standardized pricing differed between the countries researched for the study.
  • What the study’s findings mean for United States healthcare payment policies.
  • And more…

Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. For the last several years, the United States has experimented with various healthcare payment models beyond our current fee-for-service model in an effort to reduce healthcare spending. Today I’m joined by Dr. Michael Gusmano, a lead author on a research study that looked at how payers and physicians engage in structured fee negotiations and standardized prices in other countries where fee-for-service is the main model of outpatient physician reimbursement. Dr. Gusmano is a research scholar at the Hastings Center and a professor at the School of Public Health at Rutgers University. Dr. Gusmano, welcome to the show.

Dr. Michael Gusmano: Thank you, Michael. Nice to be here.

Mike Passanante: In the introduction, I briefly mentioned that you looked at how fee-for-service models work in other countries. Can you give us more detail about what you were examining in this particular analysis?

Dr. Michael Gusmano: Sure. Well, as you mentioned, the US has had a lot of experiments with different ways of paying physicians and paying hospitals in an effort to try to reduce spending. And we think a lot of these efforts, while noble, missed something really fundamental which is that, in many countries that offer universal coverage but spend much less than the US, simple fee-for-service payments are actually the dominant model of paying physicians and are often used in paying hospitals as well. And so we wanted to better understand and really dive into how these systems actually function, how they’re organized, and how they’re set up. And so we picked three countries, all of which have advanced healthcare systems, which spend a lot of money on healthcare but spend far, far less than the United States, Germany, France, and Japan and spent a lot of time looking at policy documents, reviewing fee schedules, and interviewing people to better understand what they do.

Mike Passanante: Could you give us a little more detail about how you collected that information because it was very interesting?

Dr. Michael Gusmano: Sure. So, I mean, we started out by doing a normal academic literature review. Fortunately, within our team, we have people who speak French and German. We didn’t have any native Japanese speakers, but we worked with a number of colleagues in Japan who helped translate documents for us. So the first thing we were able to do was to spend a lot of time looking at the fee schedules themselves, to look at the prices that are paid for different kinds of services. And then we did a review of publicly available policy documents to kind of look at the process: what were the laws, and what were the regulations, and then how have they changed? And then most importantly, we spent some time having these really in-depth conversations. So we did about 37 interviews over about a year and a half in Germany and France and in Japan, and we focused in on people who were directly involved with price negotiations. So we spoke with physicians and physician union representatives in each of the countries. We spoke with people within the national health insurance funds. We spoke with some elected officials who are knowledgeable and then some other academic experts who have been observing the process in those countries for a long time. And the interviews were semi-structured. But, effectively, we wanted to better understand how the process worked, what the sources of tension were, how they resolve them, and we wanted to give their assessment on how well they were doing.

Mike Passanante: And what were the results of that analysis?

Dr. Michael Gusmano: So there are some common themes that really emerge from all of this. First, although they vary a bit in how hard their budget caps are, I do think it’s important to recognize that in all of these countries they operate within broad budget parameters that are set by the legislature, right? So the government decides how much it’s going to spend on health care in total in a given year. And then negotiations over how much physicians get paid happen within these broad parameters. So they come to the table knowing this is how much we have to work with. And then they begin the hard process of figuring out what kinds of prices will be associated with different fees and different services that physicians provide. Typically, these negotiations kind of take on a very– to a well known corporatist kind of arrangement. So you have people from physician unions or physician associations. You have representatives of the health insurance funds, usually the government officials, the ministries of health and finance, who are not directly involved in those negotiations. But they’re kind of lurking in the background and certainly aware of what’s going on. And so in that sense, it’s very similar in that the basic price structure, the fee schedule, is set in a similar way in all of these countries. They involve hard negotiations that take place in the context of budget parameters that everyone is aware of. Now, that’s where they start to diverge. However, in France, it’s a very centralized process. In Germany, the individual decisions about how fees are executed tends to be much more decentralized. And so you have budgets that go to regional physician associations. And physicians are paid by their own physician associations. And that’s in part how they control volume of care because the physicians try to make extra money by providing lots of additional care to make up for the fact that the fees are limited. The physician associations can cap how much they are paid. In Japan, they take a completely different approach where the fees are already quite low and they really can’t save money by further driving down fees through negotiation. So what they spend a lot of their time focused on are the conditions under which particular types of services can be provided. So if you’re worried about particular high tech services that could be provided in a physician’s office, radiology, other kinds of things that cost a lot of money, one of the things the Japanese try to do is limit the supply by negotiating the conditions under which they can be provided. So an office will have to have a particular staff ratio and other kinds of environments to be allowed to provide those services. And so in France and in Germany, a lot of the fights are still over the price, how much the fees will be in any given year. In Japan, they don’t actually spend a lot of time talking about the price because they’ve driven them down so far that now they’re mostly focused on conditions of service.

Mike Passanante: And I was really interested in this analysis because it seems like in the United States, we’ve sort of taken the position that fee for service needs to go by the wayside for a lot of things anyway in terms of health care. But here you’ve got three pretty prominent examples of where they’ve managed to make it work. Were you surprised by that?

Dr. Michael Gusmano: Not at all, actually, because– one of the assumptions, right, “Why are we worried about fee-for-service in the US? And why have we been worried about fee-for-service?” The answer to that question is that we assume that the incentives of fee-for-service are to provide more service, right? If you get paid an additional fee for every additional service you provide, naturally, you have an incentive to do more. Therefore, the assumption has been made that the US spends a lot more money than other countries because the volume of care is excessive, right? Too many physician visits, too many hospital visits, too many MRIs, too many scripts being written. But I wasn’t surprised that this isn’t the case because I’ve been spending the past 20 years with my colleague Victor Rodwin and others looking at the actual performance of these systems. And we know, in fact, that volume, if anything, in the US is lower than it is in France and Germany, and for some things, even in Japan, particularly high-tech services. Use of MRIs and CAT scans and the like, the Japanese are actually doing much more.

So if it isn’t excess volume, the basic story about the perverse incentives of fee-for-service explaining why the US spends more, it doesn’t make sense. So what is it? It’s mostly prices. And we’ve known this for a long time in the health policy literature. And so really focusing in on how prices are set and how they drive down those prices was going to be a key. And what was interesting to us was not so much that big-picture story, but actually how they do it, and the kind of nuanced details of how they create the institutions, how they engage in the annual or semiannual negotiations of our fee schedules, and who wins and loses and those tensions. But no, I wasn’t at all surprised that fee-for-service is not the big culprit that everyone suspects.

Mike Passanante: Dr. Gusmano, what do you think these findings mean for U.S. healthcare payment policy moving forward?

Dr. Michael Gusmano: Well, I think it means that we really need to reorient to the goals of health policy with regard to healthcare spending. It’s not that we can’t find examples of excess use of care, that there isn’t wasteful healthcare spending in the US, and wasteful use of healthcare services. I’m certain there is, but that’s true in most countries. And so while we still need to pay attention to volume, and we need to pay attention to quality and appropriateness of care, we should probably be a little less fixated on trying to control the individual clinical decisions of physicians in terms of what they prescribe and what they recommend, and much more focused and place much more energy on trying to slow the rate of growth in prices. If we did that, we would have a much more affordable system, and perhaps that would ease some of the political objection to expanding coverage.

Mike Passanante: And if people wanted to find out more about this study, where can they go?

Dr. Michael Gusmano: Well, certainly, they can go to the Health Affairs website and look directly at our publication. But if they’d like to learn more about the work that I’ve been doing with my collaborators, they can either go to the Rutgers School of Public Health website, where I have a profile, or they could go to The Hastings Center, [], and look at my profile there. And we have descriptions of some of this research.

Mike Passanante: Dr. Michael Gusmano, thank you so much for joining us today on The Hospital Finance Podcast.

Dr. Michael Gusmano: Thank you very much. Take care.

The Hospital Finance Podcast


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