Fee for Service Needs Alternative Price Fix

The facts are slowly being released on how the current fee for service system is the problem for fraud and abuse and how it only is benefitting the insurance industries and healthcare facilities. In order to understand why fee for service system is the problem let’s look at the Pros and Cons of the systems.

Pros - This type of service is the supply and demand model which work well in our capitalistic society. This is how everything works in a retail market. The greater the demand and greater cost for the services, we pay the price based on the need. Therefore, healthcare is viewed no differently than the purchase of any product in America; if you have the money you can purchase the product. Healthcare is based on the best care money can buy.

So the hospitals, and other facilities can charge based on the market demands in their community, if the majority of community is insured they can charge a greater amount and justify that amount to the Medicaid and Medicare system for reimbursement. Hence the reasonable and customary charges exist.

The insurance industry under a fee for service system passes on the cost to the consumers by increases in premium. Therefore the industry trades consumers for discounts from hospitals and other facilities. This is the networks of physicians and hospital that exist which identify us as member to receive care. Depending on the networks the insurance company saves big discount percentages on paying the providers with the understanding of more patients will be forwarded to the providers and those discounts will be lowering premiums to consumers.

Cons – The idea of the current fee for service system of controlling cost, by using networks and hospital and other facilities charging a more favorable rate has not provided the promises to consumers to lower cost. It is clear there are two set of prices that exist; the insurance discount price and the retail price. So the discount price benefits the insurance companies. Yet prices in healthcare premiums have never lowered. The physician also receives lower compensation payment for services. The physician due to high discount they must give to meet the insurance company’s demands relies on the consumer for making additional payment. Therefore the consumer and physician are losing and the insurance companies wins. The insurance companies collect more premiums from the consumer and pay the physicians, hospital, and other facilities lower fees.

Hospitals and other medical facilities have raised medical cost to offset the discounts. Therefore prices for exactly the same services have changed dramatically from facility to facility in same city and state. Since fee for service system operates on retail bases, the consumer pays the difference. If the consumer is insured he pays higher premium, higher co-pay, and in higher deductible to cover cost. If the consumer is uninsured, he received no discounts and is responsible to cover the whole retail price of the hospital bill.

The insurance industry has no incentive under a fee for service system to lower premiums. Even though premiums were to be determined by the cost of care in certain parts of the country, the latter shows that regions no longer determine price. In a study done by the government it clearly shows the retail pricing in the same city and state for same procedures (MMC) fluctuate from 61K to 253K in the Northeast. In the Northwest it fluctuates from 42K to 128K, and in the Southeast from 33K to 112K. IF the procedure is the same in all the hospital facilities, why does the same procedure need to fluctuate pricing? The argument of pricing due to regions does not hold up when the cost of this procedure fluctuates across all regions. Removing the lowest of 33K and highest of 253K each in one facility, the remainder pricing are found similar in all regions.

It’s clear that an alternative system is needed from the fee for service which can offer standard price fixing for procedures in hospitals and other medical facilities to avoid this price fluctuation using the discounted fees. The saving could benefit the consumer under the new law by lowering the claims volume, which lowers the claims ratio designed to lower insurance premium. This is an alternative solution for hospital and other medical facilities concerning procedural charges.