“In most countries with universal health insurance, physicians are paid on a fee-for-service basis, yet prices there are lower than in the US. As Miriam Laugesen and Sherry Glied explain, “Higher fees, rather than higher practice costs, volumes, or tuition expenses, are the main driver of higher US spending.”
Among US policy makers, the response has been to focus on market competition, managed care, price transparency, and performance measurement. This response is grounded in the view that fee-for-service private practice and third-party payment saddle the health system with perverse financial incentives.
Beginning in the 1970s, managed care emerged as a way to phase out fee-for-service physician payment and achieve greater efficiency. US health care policy has been on a fifty-year chase to develop innovative organizational forms of health care delivery and financing.
The latest “fix” in response to the unhealthy combination of fee-for-service and third-party payment was included in the Medicare Access and CHIP Reauthorization Act of 2015: merit-based incentive payments and alternative payment systems. Similarly, accountable care organizations, value-based purchasing, and other pilot projects supported by the Center for Medicare and Medicaid Innovation are distinctly American responses to rising health care costs. But these models are overlaid on a fee-for-service health care system.
[..] Although there is evidence that fee-for-service allows for some supplier-induced demand, higher prices are distinct from incentives for physicians to provide more services.
[..] France, Germany, and Japan are the three most populous high-income nations that combine universal health insurance with fee-for-service physician payment. Switzerland and the Netherlands are often compared with the US because they rely on insurance coverage mandates and incorporate some degree of competition among private health insurance plans. At the same time, their health systems combine a robust system of regulation with systemwide managed competition. In the US, in contrast, insurance regulation is less developed and has suffered from a lack of national uniformity. Because there is no universal health insurance, public programs including Medicare and Medicaid address the gaps in coverage.
[..] All legal residents in France, Germany, and Japan are covered under universal health insurance by multiple insurers, which operate within a national statutory pricing framework for provider fees. In different ways, the three countries finance health care through social insurance that pools income-based health contributions across the entire population, and they rely on private-sector providers, particularly for community-based ambulatory care reimbursed by fee-for-service.
These countries have resisted insurance reform efforts based on competition. In France and Japan there is no consumer choice of public health insurance plans. Although reforms in favor of competitive insurance exist in Germany that allow people to change plans, interviewees told us that plans vary in marginal ways. In all three countries competition occurs among health care providers, not among insurers. Plan enrollment is determined by a person’s occupation, although prefecture residency and age influence enrollments for some plans in Japan.
[..] In France fee-for-service physician payment occurs within budget constraints set by parliament and the Ministry of the Economy and Finance. UNCAM [health insurance fund that covers farmers, agricultural workers and the self-employed] negotiates fees with representatives of the physicians unions. All physicians in the community and in private for-profit hospitals are reimbursed according to this fee schedule. Most public hospital physicians are paid on a part-time or full-time salaried basis. Although the state is not officially involved, it closely monitors the negotiations between UNCAM and the physicians unions.
The Ministry of Social Affairs and Health and UNCAM participate in a national commission with physicians union representatives to develop their own catalogue of procedure codes. This commission, originally inspired by Medicare’s resource-based relative value scale, yielded a document known as the Classification Commune des Actes Médicaux (CCAM) with more than 7,000 procedure codes. UNCAM and physicians unions have gradually increased their reliance on technical studies that assess physicians’ activities and procedures on the basis of complexity, time, and intensity of effort, but the relative values and conversion factors that determine physician fees remain a matter of political negotiation. Technical analysis serves as a guide, but the political power of physicians unions’ acceptance of budget constraints shapes the final decisions. As one of our interviewees suggested, “The CCAM was designed to provide a scientific argument for negotiating with physicians, but it was never intended to replace the negotiations.”
The German approach is characterized, as one source explained, by “an expansion of corporatist regulatory powers with the goal of enabling the collective organizations of sickness funds and service providers to urge their members to contain costs.” For example, in 1977 Germany created a multisectoral, sixty-member “concerted action” body, charged with negotiating an annual national cap on the allowable increase in spending for physician services.
In Germany social insurance resources earmarked for health care are vested in a national association of sickness funds, which negotiates with a national association of physicians over allocating funds to their members for individual medical procedures. Each side is advised by regional counterparts. This approach to “health insurance bargaining,” known as “self-government” (by organizations representing providers and insured citizens), goes back to the origins of the German system in 1883. The national government sets the rules and leaves decisions about allocation of resources, management of coverage, and clinical care to the associations and their members.
Germany relies on structured bargaining around a fee schedule that specifies thousands of medical procedures for which a physician may bill. Associations of physicians and of sickness funds negotiate annually over the relative value of a subset of coded items. The schedule includes both a general component (standard expenses of medical practice) and one that takes account of specificities of treatments. In the private insurance sector, prices are not negotiated and are often higher than those in the public fee schedule. The government has been under pressure to create a single fee schedule, particularly from the leftist parties.
Negotiating positions are argued out first within regional associations of physicians and funds, then within the national associations of each side, and finally between the two national associations. The federal association is sometimes compelled, according to one of our interviewees, to cater to “loud extremists who make drastic demands for, say, a 10 percent increase. When 1.8 percent gets approved they are disappointed but they are isolated, and sometimes they even admit they have to push the extremes to satisfy their audience.” Physician associations in Germany (as elsewhere) face a delicate balancing act between looking tough to their members and appearing reasonable to government officials, whose main focus is the health care budget.
The expectation is that both sides will compromise. “Compromise,” mused one of our interviewees, “is in our veins.” Negotiations are often technocratic, but as in France, no one pretends that they can be merely technical. If compromise is elusive, disputes are resolved by a committee.
[..] In Japan the government is more directly involved in negotiations. In 1958, in anticipation of universal health insurance, Japan combined several different fee schedules into a single schedule. Before 1958 there were inequities in access deriving from disparities in prices paid to physicians by different insurers. According to one interviewee, the consensus in Japan is that universal access depends on uniform prices for equivalent services.
The Ministry of Health, Labour, and Welfare sets prices and regulates the medical profession. Although Japan’s centralized system gives the ministry considerable power, the health budget is set by the prime minister. As one interviewee explained, the ministry’s main concern is cost control. The global budget relies on input from “the ministers and top bureaucrats of the two ministries [the Ministry of Health, Labour, and Welfare and the Ministry of the Economy and Finance]. The person in charge of the [Ministry of Health, Labour, and Welfare] budget and the [Ministry of the Economy and Finance] stays in office from two to three years, so if he points his finger up, then [the global budget] goes up. If it’s down, [the global budget] doesn’t go [any higher].”
[..] Primary care physicians dominate the Japan Medical Association and are better compensated than specialists. In most countries specialty societies engage in vigorous advocacy on economic issues, but in Japan specialists are less politically active because of their employment in hospitals and university clinical departments.
[..] As a result of fee negotiations within expenditure targets, physicians in all three countries earn lower incomes than their US counterparts. For example, in 2016 generalist physicians in the US earned an average of $218,173. In comparison, generalists in France and Germany earned $111,769 and $154,126, respectively. Similarly, specialist physicians in the US earned an average of $316,000 in 2016, compared with $153,180 in France and $181,253 in Germany. Japanese physicians earned, on average, $124,558 in 2016; however, this is an average of generalist and specialist incomes.
[..] Budget constraints in all three systems create a zero-sum game of resources, so one might expect conflict among physician groups. In Germany there are conflicts between general practitioners and specialists, as well as among specialists, and these fights may be more intense than those between physicians and the funds. As a policy maker explained during their interview: “The doctors are under more pressure from their boards than the sickness funds. The regional associations put pressure on the national body if they’re not seeing big increases in pay.”
In Japan the Japan Medical Association’s power and the global budget have restrained higher fees for specialist services. Unlike in France and Germany, the fortunes of physicians and their compensation are more closely tied to a single political party (the Liberal Democratic Party of Japan), and as long as this party is in power, community-based physicians represented by the Japan Medical Association have an advantage. One of our interviewees explained that during a brief period between 2009 and 2011, when the Liberal Democratic Party of Japan was out of power, the ministry used a decrease in office visit fees to “finance the surgical fees, because there’s a huge number of consultation fees, but not so many surgical,” one interviewee explained.
[..] France has negotiated prices aggressively but has few controls over the volume of care. Germany controls service volume indirectly by imposing budget caps on sickness funds and physician associations and putting them in charge of enforcing volume controls.
Japan’s approach is more centralized, with a complex set of conditions that govern how and where health care services can be provided. These conditions are specified in the same document that lists the negotiated fees for each service. The aim is to constrain volume by limiting the volume of services billable for each item and by limiting the number and types of hospitals, clinics, and physicians that are allowed to provide particular services.
[..] The use of fee-for-service physician payment does create problems, but marking fee-for-service as the major cause of high health care spending in the US is problematic, especially as countries with lower prices and expenditures use fee-for-service systems. France, Germany, and Japan limit the incomes of physicians by standardizing and adjusting the fees they are paid while using a variety of approaches to limit the volume of services provided.
The diversity of payment arrangements in the US acts as a constraint on unified approaches while also creating growing pressure to change and standardize fees. Although some Democratic leaders in Congress emphasize the buying power and leverage of a single-payer health care system to contain prices, extending Medicare to all legal residents would introduce challenges in negotiating prices with hospitals, pharmaceutical manufacturers, and physicians within the context of US institutions. Perhaps the most important implication of our study is that regardless of whether either fundamental changes such as Medicare for All or incremental expansion of the Affordable Care Act are proposed, both would oblige policy makers to think hard about how to set prices and oversee service volume.
[..] Medicare prices are used as the baseline price in a wide range of plans released by Democratic presidential candidates in early 2020. Whether part of a public option (in a plan proposed by Sen. Elizabeth Warren [D-MA]) or as a benchmark for reining in egregious out-of-network charges (in plans proposed by Michael Bloomberg and Pete Buttigieg), both reform approaches pegged prices at Medicare rates. This suggests that even among more centrist Democrats, who do not support a significant expansion of coverage, there is increasingly an understanding of the need to address the way in which the US sets prices for medical services, as well as health care more generally. Based on our review of fee-for-service payment practices in France, Germany, and Japan, the key challenge for the federal government would be to create processes and institutions to bring together representatives of the private insurance industry, providers, and government into a system of structured negotiations.
The experiences of these countries suggest that changes in physician reimbursement policy need not presuppose widespread changes to coverage and vice versa. Both become more interdependent when governments are committed to providing universal and affordable health insurance coverage. Health care pricing is an important pillar supporting and upholding universal coverage. Even without universal coverage, the US can and should regulate how much discretion providers of health care services have in setting their own prices. Standardization of prices can reduce treatment and administrative costs alike.
Americans should work within their institutional framework to allow for greater standardization of prices based on negotiation. Such an approach would be a shift away from the current system, in which payment negotiations lack transparency. The absence of arrangements similar to those in the three countries we have studied leaves payers fragmented and gives providers too much control over their own prices. Policies such as all-payer regulation would also address these issues.
[..] The ways and means by which France, Germany, and Japan are “getting the price right” should not be ignored by US policy makers concerned with universal health insurance or with the incremental extension of affordable health insurance coverage.”
Full article, Gusmano MK, Laugesen M, Rodwin VG and Brown LD. Health Affairs 2020.11.2