I found Seema Verma’s op-ed in the Wall Street Journal on Medicare and Medicaid reform a mixture of sound advice and wishful thinking. As is pretty typical in these pieces she does a pretty decent job of stating the problem she wants to solve:
The current rate of growth in Medicare and Medicaid is unsustainable and jeopardizes the country’s ability to fund other priorities such as education, infrastructure and public safety. While the Medicare board of trustees has warned that the program is headed for insolvency in as little as six years, Medicaid has become the largest budget item in most states. Medicare and Medicaid collectively are one of the largest contributors to the national debt and will be the largest federal budget item by 2030, according to the Congressional Budget Office.
It’s her proposed solution that caused me to raise an eyebrow. She suggests changing from the present “fee for services” system to a capitation system.
I’ve written favorably about capitation systems in the past. Under a capitation system a physician is paid a fixed amount for each patient under his or her care. Part of the payment is related to patient outcomes. The advantage of a capitation system is that it aligns the physician’s, patient’s, and the taxpayer’s interests. Here’s her description:
In value-based care, instead of getting paid only when a patient gets sick or for rendering a specific treatment, a doctor is prepaid a fixed amount based on the patient’s health status. This payment method, called capitated payment, is used to cover all the patient’s healthcare-related costs. The prepaid amount creates incentives for the provider to make investments in the type of care that avoids expensive emergency-room visits and hospital stays.
To ensure that care isn’t rationed, part of the doctor’s reimbursement is tied to quality and patient outcomes. For example, doctors can use part of the capitated payment to cover the costs of home modifications to prevent falls, to provide medically tailored meals for diabetics, or to send a nurse to a patient’s home to administer medications.
Value-based reimbursement can also be used to address new high-cost medications. If a patient doesn’t show meaningful improvement after taking the medication, the drug manufacturer’s reimbursement would be reduced or not paid at all.
I’m skeptical for a number of reasons first and foremost because I find it hard to imagine how a capitation system could work alongside a fee for services system for private insurance. I think the only way it would work would be within the context of a full-fledged national health system. Another issue is that historically such systems have been resisted by physicians and medical practices. A capitation system for the U. S. was proposed 80 years ago. The idea died in its infancy due to physician opposition. Again, a capitation system for Medicare was tried in the 1970s. It gained very little participation from physicians. What’s different now?
Something she doesn’t mention. For such a system to work, physicians would not be able to pick and choose among patients. Practices would either be closed to new patients or open to any patient. It’s hard for me to see that gaining much acceptance.
I agree the biggest problems are political. Insurance companies would also be opposed.
Here in north central, rural Ohio, our local county hospital has bought out all (100%) of the private practices, and incorporated them into its system. I still go to all the doctors I had, but now they are employees of the hospital.
My sister informs me that the same process is underway in NH.
Its seems to me that doctors being employees changes the whole economic situation regarding capitation. Would hospitals be more open to such systems? Being large bureaucracies, I think they would.
PS. Massachusetts General Hospital, a famous, high quality teaching, research, and practice institution in Boston, with connections to Harvard Medical School, is advertising its services in Ohio. The Cleveland Clinic and the Mayo Clinic have advertised in Ohio for years.
What is going on?
Doctors being employees doesnt change the capitation issue that much, maybe a little. They get paid as employees but the hospitals still charge insurance plans on a fee for service basis. It does create some real admin headaches if you are running capitation alongside fee for service.
This is not so hard to accomplish for primary care docs. It creates issues when you try to work in specialists. Who is going to decide how many specialists you need and how much do you pay them? If your formula decides you only need one specialist of some sort at a given hospital, and it will, that means that doc is on call 24 hours a day, 7 days a week. Going to be hard to recruit for that.
All that said, it actually is doable, but so are a lot of other systems. The problem is more in achieving the will, not the method per se. Part of that is the kind of silly, I think, assumption on the part of people like Verma that people will be happy taking a pay cut just because they chose her system which she thinks is really clever. Look, we could just stop increasing pay levels for Medicare right now. That would go a long way towards solvency, but politicians have not done that because of push back, more from hospitals and pharma than form doctors if we are honest, due to concern about the pushback. No one wants less money. Those same groups arent going to suddenly say “OK, we are really happy ending up with less money because its a clever plan by Verma”.
Steve
The way it would be structured is that PCPs receive the capitation and subcontract to specialists. Again, I don’t think a capitation system is workable without our health care system as it is now.
That’s certainly the way I read the tealeaves.
I was short on time and didnt want to write War and Peace so the PCP vs specialist thing is just a tiny fraction of the issue. Doc pay accounts for about 8%, last I looked, of health spending. If the specialists work for free we still go bankrupt. The proposed capitation thing doesnt address tons of other costs like pharma, other health care workers, capital costs, supplies, etc. It sounds clever so some people like it. It is in fact sort fo what has been done in some systems. Those have generally grown organically so that they have had time to figure out more of the details and resolve them. However, some fo those systems resulted in some cost savings but some have not. An adjacent competitor, our catchments are next to each other but not much overlap, does something similar but they routinely cost 5%-10% more than we do. As an attempt to work with them we built a joint hospital. They asked us to run it because we are better at keeping costs down.
Steve
Once again, the way it’s supposed to work is that the PCP receives the capitation which covers everything. If a specialist is brought in, the specialist is paid by the PCP. All other costs, e.g. other health care workers, capital costs, supplies, etc. are paid by the PCP.
That’s akin to the system used in Italy. I don’t believe it’s workable in the U. S. for a host of reasons. One of the most important reasons is that our PCPs don’t have the skills necessary—more managerial than technical. I presume the way it would work in the U. S. is that hospitals would be paid the capitation.
In theory that aligns all interests. But you know what Yogi Berra said about theory.