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Other nations get health care prices right

November 12, 2020

Topics: Quote of the Day

By Michael K. Gusmano, Miriam Laugesen, Victor G. Rodwin, and Lawrence D. Brown
Health Affairs, November 2020

Abstract

Although the US has the highest health care prices in the world, the specific mechanisms commonly used by other countries to set and update prices are often overlooked, with a tendency to favor strategies such as reducing the use of fee-for-service reimbursement. Comparing policies in three high-income countries (France, Germany, and Japan), we describe how payers and physicians engage in structured fee negotiations and standardize prices in systems where fee-for-service is the main model of outpatient physician reimbursement. The parties involved, the frequency of fee schedule updates, and the scope of the negotiations vary, but all three countries attempt to balance the interests of payers with those of physician associations. Instead of looking for policy importation, this analysis demonstrates the benefits of structuring negotiations and standardizing fee-for-service payments independent of any specific reform proposal, such as single-payer reform and public insurance buy-ins.

From the Introduction

The rising costs of US health care make affordability—for consumers, employers, and governments—an elusive goal. Studies show that these expenditures are higher in the US than other countries not because the volume of service is higher but because prices are higher. One reason for the higher prices in the US is that private insurers typically do not have sufficient market leverage to control them, and there are dramatic price variations in the private market. Medicare has done better at controlling prices than private insurers have, but Medicare is limited by Congress in the degree to which it can negotiate prices.

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.”

Representatives of systems with universal health insurance explain that their health systems reflect an enduring commitment to solidarity. Their position reflects the insistence that health care is a human right and a continuing affirmation of redistribution and reciprocity as a central element of social justice.

In this article we explore how three countries—France, Germany, and Japan—appear to achieve economic sustainability in a fee-for-service system. We then identify the institutional processes that influence the prices of physician services in universal health insurance systems. These countries have all attempted to contain rising health care costs by negotiating prices with physician associations and adapting fee-for-service to the evolution of health care provision.

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.

Summary of the approaches

The three countries we examined all negotiate fees in the context of expenditure constraints, but they have contrasting institutional processes to address health care prices and volumes. 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.

Although France and Germany hold physician fees at lower levels than in the US, both countries pay specialists more than primary care physicians. These fee schedules reflect a bias for more technical or procedural services over services such as office visits in primary care. In contrast, Japan, uniquely, pays private office–based generalist physicians, represented by the Japan Medical Association, more than academic hospital–based specialists.

From the Discussion

The health systems we studied focus on controlling prices in the context of fee-for-service medical practice and national expenditure constraints that do not result in withholding health care from the population. 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.

Although France, Germany, and Japan vary in their approaches to regulating prices and service volume, all three rely on centralized fee negotiations. This general approach is evident in some Democratic health reform proposals, some of which have proposed empowering the secretary of health and human services to create a national fee schedule for payers and providers within a public option or Medicare for All design.

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.

The purpose of international comparisons for policy learning is not to transplant or import foreign systems into domestic institutions. The US lacks a solidaristic vision—the population is distributed across separately regulated private insurance plans, and programs designed for different groups remove a shared identification, balkanizing the system of health care. Our approach to understanding physician payment policy across nations acknowledges the absence of solidarity in the United States. Price negotiations must reflect the history and distinct characteristics of each country.

Cross-national comparisons, however, offer perspective on the challenges that Americans confront and the ways in which experience abroad might be adapted to the specificities of other national institutions. 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.

https://www.healthaffairs.org…


Comment:

By Don McCanne, M.D.

Health care spending is highest in the United States, and a major reason for this is our very high prices. The private insurance industry in the United States has not been particularly effective in controlling prices, and our government has largely limited its control of prices to public programs such as Medicare and Medicaid, though, even there, the government has refused to control Medicare drug prices. The authors use the examples of the universal programs in France, Germany and Japan to show how governments can get the price right.

The authors contend that we do not have to enact a Medicare for All system to control prices. But when you look at our fragmented health care financing system and the free rein that the private sector is allowed – especially the private insurers – it does not take too much imagination to see that trying to implement fee controls across the entire system would be much like herding cats. The fact that the crisis has been with us for many decades without any real progress being made in price controls, outside of Medicare and Medicaid, demonstrates that these cats are not very herdable.

Essentially all other nations have been effective in controlling spending through control of prices, and we could be too, but it sure would be a lot easier if we had a well designed, single payer, improved Medicare for All. That way we would be standardizing prices in a system based on solidarity.

Why solidarity? The current political turmoil should provide us with enough evidence that we sure could use an infusion of a whole lot more solidarity. Just our lack of solidarity in managing the COVID-19 pandemic is causing suffering, economic hardship, and loss of lives, simply because we have prioritized political squabbles over solidarity. Let’s give solidarity a try – for our health.

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About the Commentator, Don McCanne

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Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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