By J. Adrian Stanley
Capitated payments. Value-based care. Fee-for-service.
While they have wonky names, health care payment models — how your health insurer pays your doctor, or the group/company that your doctor works for or contracts with — have a tremendous impact on the quality of care you receive and bills mailed to you afterward.
Various payment models aim to deliver quality care at a reasonable price by either paying directly for services rendered, offering providers set monthly payments or paying providers more for better results. Yet, a 2018 study by Harvard T.H. Chan School of Public Health and the London School of Economics, published in the Journal of the American Medical Association, found that Americans spend far more on health care than 10 high-income peer nations and still have worse population health outcomes and access to care. To be precise, according the Milliman Medical Index, the 2019 cost of health care for an American family of four on an average employer-sponsored PPO health insurance plan is $28,386.
The Harvard study found, “The main drivers of higher health care spending in the U.S. are generally high prices — for salaries of physicians and nurses, pharmaceuticals, medical devices, and administration.”
So the model of payment — and whether it trims salaries and cuts administrative costs — matters. Here’s a look at the benefits and drawbacks of three common models.
The fee-for-service model pays providers for the services they render. The Deloitte 2018 Survey of U.S. Physicians found that 42 percent of doctors charge insurers directly based on fees for service.
That might seem like a fair method, but it has its detractors. In a 2017 editorial for Forbes, Dr. Robert Pearl wrote that fee-for-service worked fine a century ago when most medical needs were acute, but the prevalence of chronic disease has led to skyrocketing costs.
What’s more, he noted, the Dartmouth Atlas Project, which documents variations in the distribution of medical resources, has found that the treatment of patients tends to follow the available resources. The more hospital beds in a city, for instance, the more likely a patient is hospitalized. And it’s well-documented that American providers conduct many unnecessary procedures, like surgeries.
Pearl wrote, “When providers are paid for doing more, that’s what they do: They increase utilization of services and ratchet up the cost of care without even realizing they’re part of the problem.”
Think of capitation as a prepayment. A physician or managed care organization is paid an agreed-upon amount by an insurance company per patient for a set period of time (say, one month).
Capitation was popular decades ago, and then fell out of favor, apparently because providers felt it was too risky. But a 2017 article on athenahealth.com noted that since the 1990s, digitized health records have eased cost predictions and cut down on duplicate services. And stronger interest in cost savings from major players like Medicare means more momentum.
And a 2016 article in Harvard Business Review argued that capitated payments are effective at encouraging doctors not to give unneeded care (duplicate tests, unwarranted surgeries, etc.) and cut billing costs.
“It’s the only payment system that fully aligns providers’ financial incentives with the goal of eliminating all major categories of waste,” the article noted. “It fundamentally shifts the role of managing the amount, form, and cost of care from insurers to medical practitioners.”
It’s difficult to determine how popular capitated payments are currently, and the Colorado Division of Insurance does not track the contracts. But Medicaid commonly uses capitated payments.
State spokesperson Marc Williams explained that Colorado’s Medicaid system contracts with the state’s seven Regional Accountable Entities (RAEs) — regional networks that contract with physicians. Williams said capitated payments allow providers to profit from “[a]ny money left over.”
Value-based care model
The new kid on the block is value-based care — paying providers based on patient health outcomes. The hope here is that doctors invest in preventative care to keep patients healthy. The Deloitte 2018 Survey of U.S. Physicians found that 31 percent of doctors received salary this way. United Healthcare is among the companies to enthusiastically embrace the model and the federal Centers for Medicare and Medicaid Services has some value-based care models.
A recent study in the New England Journal of Medicine followed the Alternative Quality Contract of Blue Cross Blue Shield of Massachusetts (a value-based care model) for eight years and found its claims were 11.7 percent lower than those in control states.
But the Michigan Health Policy Forum noted that value-based systems can have a number of flaws (which it says can be addressed) including deincentivizing doctors to treat patients with complex problems and holding providers accountable for factors outside of their control (like services provided by another doctor).