How Japan, Germany, and France Control Spending in a Fee-for-Service System

An analysis published in Health Affairs outlines the benefits of structuring negotiations and standardizing fee-for-service payments independent of any specific reform proposals to control health care spending in 3 high-income countries.

“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,” authors wrote.

Studies have shown that prices in the United States are higher than in other countries not because the volume of service is greater, but because costs are higher due to private insurers’ insufficient leverage in the market and dramatic price variations in the private market.

In most countries with universal health care, physicians are paid on a fee-for-service basis, researchers explained, whereas in the United States, fee-for-service private practice and third-party payment are thought to weigh down the health care system with financial incentives. US policy makers instead support more focus on market competition, managed care, price transparency, and performance measurement.

To better understand how France, Germany, and Japan appear to achieve economic sustainability in a fee-for-service system, researchers focused on how the governments balance the needs of physicians, patients, and insurers. In the 3 countries, legal residents are covered under universal health insurance by multiple insurers operating within a national statutory pricing framework for provider fees. Competition occurs among health care providers, not insurers, and plan enrollment is determined by an individual’s occupation.

Investigators reviewed and translated fee schedules, payment policy descriptions, reports and policy documents. They also sought assistance from health policy experts to identify interviewees. A total of 37 individuals (14 in France, 11 in Germany, and 12 in Japan) were interviewed between 2016 and 2018.

“In the course of our interviews…we sought to understand the process for creating physician fee schedules and updates, learn about recent policy changes in physician payment, and identify the remaining challenges in the use of fee-for-service payment to physicians,” authors wrote.

Although Japan, Germany, and France all negotiate fees in the context of expenditure constraints, the countries have different institutional processes to address health care prices and volumes. Researchers found:

• 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 institutes a complex set of conditions that govern how and where health care services can be provided; the country aims to constrain volume by limiting the volume of services billable for each item.
• Japan limits the number and types of hospitals, clinics, and physicians allowed to provide particular services.
• Although France and Germany hold physician fees at lower levels than in the United States, both countries pay specialists more than primary care physicians.
• In France and Germany, fee schedules reflect a bias for more technical or procedural services over services like office visits in primary care.
• Japan pays private office–based generalist physicians, represented by the Japan Medical Association, more than academic hospital–based specialists.

Overall, the 3 health systems 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 for the population, authors wrote.

In the United States, the myriad of payment arrangements inhibits unified approaches and creates a growing pressure to change and standardize fees. In the absence of universal coverage, authors argued that the United States should regulate how much discretion providers of health care services have in setting their own prices.

“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,” the researchers concluded.

Reference

Gusmano MK, Laugesen M, Rodwin VG, Brown LD. Getting the price right: how some countries control spending in a fee-for-service sysyem. Health Aff (Millwood). 2020;39(11):1867-1874. doi:10.1377/hlthaff.2019.01804