Should insurers pay the same fees under an all-payer system? - Medicare Payment Systems: Moving Toward the Future

Health Care Financing Review, Winter, 1994 by Gerald F. Kominski, Thomas Rice

INTRODUCTION

Health care reform has emerged as a serious priority at both the national and State levels. The primary goals of most reform efforts are to improve access to health care services while also controlling total health care expenditures and assuring quality of care. Although seemingly contradictory, many analysts believe that evidence from other countries and past U.S. experience suggest that these goals are not only compatible, but must be pursued simultaneously as part of an effective strategy for U.S. health care reform.

One option for reform would give government the sole authority to pay providers. Such an arrangement, known as a single-payer system, is exemplified by the Canadian health care system. Proponents argue that a single-payer system would assure equal access to care for all citizens, and that it would be more successful in controlling costs. Cost control might be easier not only as a result of the reduced administrative costs and possible economies of scale, but also because of the government's exclusive bargaining power.

Although direct government control of the health care system in the form of a Canadian-style single-payer system might be the most effective means of controlling the rise in health care costs, its enactment by Congress or individual States faces severe political barriers. Consequently, some sort of alternative to a single-payer system--one that offers the advantages of cost control and universal coverage, but does not represent a government takeover of the health care payment system--might be more likely to overcome these political barriers (Holahan et al., 1991).

Whether it is the centerpiece or just a component of health care reform, proponents of an all-payer system believe that it offers a more politically acceptable alternative to a single-payer system and retains some of the same advantages. An all-payer system would keep in place our many public and private insurers, but would require that they each pay the same price to providers. Thus, all public and private insurers would continue to operate, but they would be required to use a common payment methodology (e.g., DRGs for hospitals, RBRVS for physicians) and pay a common price.(1) A number of other countries (Germany, France, Japan) have national health programs that resemble, to varying degrees, all-payer systems (U.S. General Accounting Office, 1991), as did some proposais for health care reform introduced before Congress. Advocates suggest that an all-payer system would enhance access to care and, at the same time, better control health care costs. In fact, a report by the U.S. Congressional Budget Office (1991) concludes that if Medicare's payment rates were employed, universal health insurance coverage could be provided under an all-payer system at a net cost of only $5.6 billion, less than 1 percent of total U.S. health spending in 1989.

An all-payer system could improve access to care because providers would have a financial incentive to treat all patients in the same manner. No patient would be worth any more to a provider than any other. In contrast, it is almost universally believed that many hospitals and physicians now avoid caring for Medicaid patients due to their relative unprofitability, and there is increasing anecdotal evidence that the same thing may be beginning to occur under Medicare.(1)

With respect to costs, an all-payer system has three potential advantages. First, unit fees would be directly controlled under the system. Second, an all-payer system should curtail the practice of "cost shifting," by which providers charge more to other payers when one payer cuts its fees. Third, an all-payer system would be simpler to administer.

The success of an all-payer system may depend on other policy reforms. Enhanced access, for example, could be frustrated if physicians are allowed to "balance bill" patients or if they stop practicing medicine. Costs might not be controlled if the all-payer rate were set too high, or if providers responded to controls on unit fees by raising the quantity of services. Other policy tools, therefore, such as volume performance standards or global budgets, are likely to be a necessary complement to an all-payer system.

Previous studies (Ginsburg and Thorpe, 1992; Rice, 1992) have examined the policy and design features of all-payer systems, including:

* The structure of the ratesetting agency.

* The role of alternative delivery systems.

* Control of service volume.

* Payment differentials. These authors address important design features that can be expected to influence the economic impact of an an-payer system. But there are other fundamental technical issues that must be addressed before an all-payer system could be implemented as part of a national health care reform package. One deals with whether Medicare payment methods can be applied to other payers, or if significant modifications are needed before applying these methods broadly. Evidence from State Medicaid programs suggests that modifications are necessary before adopting DRG- or Rbrvs-based payment methods for non-medicare populations (Lichtig et al., 1989; Intergovernmental Health Policy Project, 1992).