The Truven Health Blog

The latest healthcare topics from a trusted, proven, and unbiased source.


The End of Fee for Service – Please!

By Truven Staff
Mike Taylor imageThe Society of General Internal Medicine (SGIM) recently released a report calling for several changes in how healthcare is paid. Most importantly, the SGIM is calling for an end to the “fee for service” payment model, and moving to a reimbursement system more based on the quality of the healthcare delivered. I completely agree. The SGIM is to be congratulated for this important recommendation.  Fee for service drives the wrong behavior for hospitals and physicians.

Physicians are currently paid more money if they provide more services to patients, irrespective of whether the patient actually needs the service. This incents physicians to fit more patients into a crowded day and it leads to more testing. Medical equipment and device vendors understand how payments work—their proposals to physicians to put more testing equipment in the office include details of how many tests per month need to be done to make a profit on the equipment.  This type of analysis is provided to physicians every day for ECG machines, heel ultrasound bone densitometers, and radiology equipment. The tests provide value in certain situations, but the emphasis should be on the clinical need, not the profit motive.  Fee for service medicine drives this behavior, and is part of the reason US healthcare is the most expensive in the world.

Hospitals are not immune to the problem; hospitals make more money by filling the beds and keeping the CT and MRI scanners busy. Marketing efforts are focused on attracting more patients for hospital services, particularly in the more lucrative areas such as cardiovascular surgery and cath labs. Hospitals should focus on improving the health of the communities they serve, not on providing more services.

One of the promises of the accountable care organization is to base medical payments on quality outcomes, not on volume of services. If implemented, the provision of medical services will be based on the medical need and the evidence of medical benefit of the service. This needs to be an important part of the discussion on reforming and improving the healthcare system in the US.

Dr Michael Taylor
Chief Medical Officer