Is fee-for-service the problem with rising Medicaid costs?

Dec 3, 2018

The number of Erie County recipients on Medicaid shows a stabilization. However, that doesn't mean costs will stabilize.

The latest numbers show around one-third of the county's population is on some form of Medicaid and around one-third of those people are under age 21.

Cost figures are complicated because of the mix of federal, state and local dollars involved. Erie County Executive Mark Poloncarz' proposed 2019 budget calls for $200 million in county funds to help pay for Medicaid.

The problem is that healthcare costs are going up, with the Affordable Care Act giving many people the ability to pay for care and it's being used. However, Erie County Medical Center Communications Vice President Peter Cutler said the payments for those services are less than the costs of service.

"ACA gave people the opportunity to get health insurances they didn't previously have and they took advantage of it," Cutler said. "And by taking advantage of it, they came into facilities such as our hospital for services. And then, because of the difference in the reimbursement and actual cost of that service, that's what helped contribute to driving up some of those costs."

That's not going to change any time soon, said a University at Buffalo expert. Larry Zielinski is executive in residence for health care administration in the UB School of Management. He said the real cost driver is what's called fee-for-service: that dollars are just paid out for every service, instead of trying to control costs.

"The system financially incents more volume and more expensive volume - and at the same time it does that, it pays nothing or virtually nothing for prevention, pays our primary doctors very little, starves our primary care doctors, gives meager support to community initiatives to support preventive health," Zielinski said.

Very slowly a new system is coming in, under which there's a set fee for care. The money for individual procedures will come from that. If care costs less, the provider keeps the difference. If it costs more, there's a problem.