An Old Idea Is New Again
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A Payment Reform Commission in Massachusetts has been meeting for the past few months and discussing - natch - reforming the way health plans and government purchasers like Medicare and Medicaid pay for health care services. Their primary objective is to move away from what’s commonly referred to as “fee for service” payments - in which physicians and hospitals are paid based on how many procedures they perform - to something that’s based more on healthy outcomes and good care management. Their preferred solution, at least according to a story in today’s Boston Globe, is global budgets.
This is very interesting. Back in the early 1990s, I served as Secretary of Health and Human Services under former Massachusetts Governor Bill Weld. Around that time, I remember telling a roomful of health care professionals that I anticipated that all health care services would be paid for using some kind of global budget by the year 2000. My rationale at the time was eerily similar to the language used in today’s story: fee for service is inherently inflationary, it doesn’t reward quality, it encourages over-utilization and it doesn’t support team-based approaches to health care delivery.
I couldn’t have been more wrong. Global budgets - where a group of providers get paid a monthly fee to take care of all of the health care needs of a particular individual, instead of getting paid a fee for each visit or service - caught on with physicians who were interested in practicing group medicine, but was rejected - loudly - by the rest of the health care community. In addition, many people who were nudged by their providers and their health plan to receive all of their care from the group of physicians who were being paid a monthly fee to take care of them, disliked this restriction on their ability to see any physician they wanted to see.
As a result, the global budget model has been adopted by about 10-15 percent of the physician community, and everything else is still fee for service. Multi-specialty practice groups like Atrius - which includes clinicians from places like Harvard Vanguard, Dedham Medical, and South Shore Medical - along with some smaller hospitals and physician groups - like Mount Auburn Hospital and the Mount Auburn Physicians Association - like and do well with global budgets. But most large, hospital-based systems - like Partners HealthCare and Beth Israel Deaconess Medical Center - and most independent hospitals and physician groups - prefer fee for service payment models.
Why do most physicians and hospitals prefer fee for service? Two answers. The first answer is financial risk. If there’s a global budget - say $10,000 per person per year to manage the care of 1,000 people ($10 MM in total) - and the cost of providing a year’s worth of care to this population turns out to be $11 MM, who pays the extra $1 MM? Is it the health plan’s responsibility - for underbudgeting the projected cost of care for the people being taken care of? Is it the physician group’s fault for not practicing conservatively and effectively enough to make the $10 MM work? Or is it the fault of some of the patients for being non-compliant and unwilling to stick to their treatment protocols, thereby costing more overall than anyone anticipated? There are, in fact, models and tools that can help health plans and the providers figure some of this out, but in the end, this remains a sticky wicket.
The second answer is provider credibility risk. Back in the 1990s, when global budgets were more common, patients wondered if their provider was withholding care from them to meet a global budget target. This suspicion about undertreatment undermined the credibility of global budgets with patients - and some providers - and had as much to do with their demise as anything else.
I don’t dispute the need for payment reform - and have blogged on numerous occasions about the importance of paying more for time and less for new technology - no matter what the payment system looks like overall - but I wonder if it’s really all about payment reform. Some providers are 30 percent less expensive than others and deliver superior outcomes right now - despite the imperfections in the payment system. Maybe we should be spending more time trying to understand why they’re so effective.
Well stated, Charlie. And please see more on this topic here; http://runningahospital.blogspot.com/2009/05/provider-payment-considerations.html
Are you then an advocate for capitation? Is that what global budgeting means in essence? In a high quality provider, capitation may work fine. What about in a poorly functioning provider? Won’t capitation create a financial incentive in conflict with what may be the best patient care? It seems that the real issue is outcome and price transparency. I understand that financial incentives drive behavior, but I am still confused as to why so many policy wonks are focused on who pays and using what methodology. Measuring outcomes by medical condition and forcing the publication of both cost and outcome data could move us far further down the road of progress. No? Cardiac surgery, pediatric oncology, transplant…in every field in which outcome reporting has been introduced, the quality of care goes up, the cost goes down. Practice pattern variation gets reduced and best practices are adopted sooner. You can’t affect what you don’t measure. Add in the variable of cost and you can get to a measure of value, and of course subsequently, measures like QALY. Why aren’t more people arguing for policy that supports THESE aims? This is the only way to make access possible for all while not bankrupting the nation.
Paul - Thanks for the reference to your blog. I share your concern about splitting the provider payment discussion off from the benefit design discussion. If the plan design encourages patients/consumers to think one way about their health care and the provider payment system encourages providers to think another way, that’s going to create enormous friction - for everyone.
Dustin - I’m with you all the way. I think public disclosure is a faster, surer route to reforming anything than anything else (sorry for the redundancy). Capitation/global budgets are appealing to many people because they imply simplicity - and because they are the opposite of fee for service - which implies waste and over-use. And there are some physician groups who like capitation and do well with it. But most, as you point out, do not. Thanks for writing.
I completely agree Charlie. In fact, I’m a bit more cynical. Payment reform has been tried before. It will not help unless we also educate patients about why “more is not better.” By more I mean, more expensive, more technology, more care! People need to see how the decisions they make about how much care they seek and where they seek it comes back around in higher premiums and lower wages the next year. This new version of capitation (now called global budgets) will fail just like the first round unless we engage consumers in decisions about their health and health care.
Charlie, given how most health plans report capitation expenses to the employers they insure, wouldn’t moving towards global budgets/capitation as THE reimbursement method for providers make it harder for a credible (or self-funded) employer to evaluate and compare utilization (by category in comparable periods of time)? Additionally, wouldn’t it further cloud the employer perspective on actual expenses versus paid premiums?
Amy - I think the plan design piece is a key component of making the consumer more aware of what’s up. Tiered drug formularies, for example, have pretty much worked - our generic use rate has gone from 45% of all prescriptions when first introduced to about 70% today.
David S. - Very good questions. I think the whole issue of how to give self-funded employers - which now make up about half of the privately insured population - access to the information they want on health care delivery and service utilization in a global budget environment is a really important one. As long as there is some kind of fee for service accounting/tracking process that’s tracking which person is getting which service from which provider going on underneath the global budget, that might work.
You’d also need something like this to figure out how the provider group actually did, relative to the global budget - because most mulit-specialty groups are still going to want to keep track of who’s delivering what to whom - even if the group is being paid on a monthly, lump sum basis.
Ah, le plus que chose change……we\\\’ve been around this block before and it\\\’s certainly no panacea. I also think we need to come up with financial payment mechanisms that align the interests of the providers with the plans around cost and quality, get the patient engaged through benefit incentives and good care managment tools, and recognize that one-size doesn\\\’t fit all in the payment model. Let\\\’s not assume that if we push global cap payments on large artifically created \\
Doesn’t capitation just make the doctor a little insurance company, assuming the risk for a small number of patients in his practice? Wouldn’t the law of small numbers require that for a predictable number of these doctors bad luck might spell disaster. What works for a large group, doesn’t necessarily work for a small group.
As your post points out capitated plans have been tried before in the 1980’s and they generated considerable backlash for the reasons you outlined (providers were unwilling to take on risk, and patients were concerned about providers being incentivized to limit care).
Seems to me the solutions to address the thorny issue of optimal utilization are plain to see:
1. Need for absolute transparency with respect to effectiveness of treatments, drugs and providers. We need to arm patients with the information they need to make intelligent choices.
2. Ensuring that patients have some “skin in the game” in the form of co-insurance or high deductibles.
The problem in my experience is that all entrenched interests in this industry have fought #1 tooth and nail.
Providers and drug companies always argue that effectiveness is too complicated to assess and that existing methodologies are too simplistic. Carriers are unwilling to share information about utilization and effectiveness with their competitors because they see this as a competitive advantage.
This is the number 1 reason why this industry is plagued by high costs and is absolutely opaque to the consumers of these services. I could do far more research and knew far more about the mini-van I was going to buy when my child was born, than I did about my delivery options or the ob-gyn who was going to deliver my child!
I agree with all of the above; transparency - bring it back to a transaction between a Dr and a patient, so both know what is in their deal of healthcare. I think capitation paid straight to the Dr from the patient without the insurance companies being involved is the ultimate goal. And the government should insure physicians practices against catastrophic loss. It would be cheaper for the government to cover unforseen costs and illnesses than for every uninsured person to get total healthcare. Dr’s can set their own prices, better Dr’s, higher prices; Copays so there is no overuse of a Drs time, but the patient should have rights as to be able to see the Dr in a reasonable amount of time. Of course some patients will be upset, but those would be the overusers of healthcare who arent carrying the burden of cost on themselves. Drs get a steady stream of income and are responsible for patients health; Drs get to determine the cost effectiveness of treatments and the gov insures against loss if a patient does get really sick and switches over to a medicare/medicaid program. Also, we must decouple insurance from employment forever. Take that burden of employers and give them a tax credit for giving that cash straight to the employee.
Any other system is doomed to failure because everyone in the “game” is driving costs up.
Amy,
I have to disagree on some level. In an ideal free market system that would work. However, we all know that the playing field isn’t level, and, therefore, the free market system of informed consumers is handicapped from the start.
Ask the average person, let alone a working mother of three, if they 1) feel qualified to research every general practitioner and specialist they need to see for outcomes, cost and overall value or 2) honestly have the time or resources (including acess to the necessary data) to do so. Of course I’m in favor of personal responsibility, however, is this truly a realistic expectation of the average person?
We have specialized regulators of the financial services industry (clearly, not utilized effectively) that produce independent evaluations and monitor for safety, soundess & overall performance. This was undertaken based on the assumption that this was a specialized field that required expert knowledge to oversee and monitor effectively for the sake of consumer protection. It is no less true for medicine.
The reality is, we need oversight of the medical care field. To dovetail with Dustin, this would allow for greater accountability for providers and encourage desired outcomes in both patient care and value for cost.
I do not have a medical background, but I would appreciate some commentary by those who do:
-I’m inclined to agree with Stella that medical markets fail because the vast majority are far from educated consumers. Transparency and comparative effectiveness research would help, but still the only experts are also salesmen. How about having patient representatives-experts whose only financial incentive is keeping the patient a loyal customer- to help with the economic decisions of healthcare?
-Again, not an expert, but it seems we force physicians to handle much that could be handled by nurse practitioners, etc. Licensing and regulation needs to take a backseat.
-We still have the problem of people who can’t afford healthcare under more market-based systems, but current conditions (eg punishing the most cost-effective medicine out there- primary care) prove that having a central authority determine payment rates and methods isn’t the best option. What about a system where everyone pays in (according to income) and everyone receives (according to their medical characteristics)? A patient could then use that amount to obtain whatever medical package they see fit. No privacy intrusions: if you don’t want the government to know your medical conditions, you’ll just be given the amount for someone without those conditions. Voluntary provision of personal medical information also leaves room for lifestyle incentives.
-If public insurance can fairly beat private through lower administrative costs and lack of profit, sounds great. Instead of just one, though, why not several with different payment regimes-see which one does best?