by Kyle Leggott, MD
Featured in the February-March-April 2023 Colorado Medicine Colorado Medicine.
When we consider increasing value in health care, I believe most are trying to achieve the noble goals of better patient outcomes and improved patient experience at lower costs. A bonus to the health care value equation is that if done correctly – by ensuring that care is provided at the right place, time and context, and all of the direct and indirect costs are accounted for – we can also improve the clinician experience by compensating care providers appropriately for doing what they are called and trained to do and eliminating duplication.
It is widely accepted that the fee-for-service model is largely flawed. It incentivizes volume of services, without regard to what is appropriate and without an incentive to control costs. The fee schedule favors procedural over cognitive care, making overall reimbursement inadequate for many sectors of health care including primary care. So, what are the alternatives?
Capitation arrangements – when insurance pays a per-member-per-month fee – can cover just primary care visits, primary care visits plus associated tests, all outpatient services, or all of patient care. This model provides flexibility of funds for non-visit-based care and team-based care and incentivizes cost savings. But it poses an increased financial risk to practices and clinicians, and runs the risk of potential under-delivery of services given limited funds. For capitation to be viable, there needs to be risk adjustments to the per-member-per-month fees based on patient complexity and level of care needed. Determining appropriate risk adjustment has been an elusive goal.
Depending on the arrangement, the capitated payment may be paid directly to the providers or to an intermediary like a managed care organization. The managed care organization may or may not actually pay a practice or health care organization via capitation, and the practice may or may not pay the providers on a capitated basis. In traditional capitation arrangements, payments are based on historical fee-for-service amounts and adjusted based on limited factors such as age and sex. Without adequate risk adjustment for medical complexity and social drivers of health (SDoHs), funds may be insufficient for patients with greater health care needs.
A blended fee-for-service and capitation model somewhat balances the negatives of both traditional models by partially allowing for proactive care, but the predominance of fee-for-service over per-member-per-month fees may not reach a tipping point that enables for the necessary restructuring of a practice. One study using simulation models suggests that at least 63 percent of practice revenues need to be capitated in a blended model to enable a shift in practice structure.
In a bundled payment model, a patient seeks care for a defined episode or medical problem and insurance reimburses a practice with a global payment or expenditures are later reconciled against a target. A budget is set for an episode of care across multiple providers. It incentivizes cost control within the episode and allows for flexibility in how funds are used. But it’s almost impossible to define an “episode” in primary care and there is the possibility of insufficient funds to cover needed services.
Direct Primary Care (DPC) is a contractual arrangement where the practice charges patients a flat monthly fee for their primary care services in lieu of third-party insurance billing. Fees for patients in a DPC model are generally set by age and are usually less than $100 a month. In return, patients usually have access to longer visits with enhanced forms of communication with their physician. Patients often must still buy insurance to cover catastrophic costs, hospitalizations or surgeries. DPC is different from concierge practices, which charge patients an annual retainer and still bill insurance. DPC providers usually see a panel of about 600-800 patients rather than upwards of 2,000, which, as this model becomes more popular, could worsen workforce shortages.
It remains to be seen when we will fully replace fee-for-service and if one of these models or something completely different will rise to predominance. As many practices and organizations are working on payment reform, it remains crucial for physicians to stay involved in these conversations to ensure we achieve the goals of improved patient outcomes, improved clinician experience and lower costs.
Kyle Leggott, MD, is a practicing, board-certified family physician with a deep understanding of health care and pharmaceutical cost drivers and related health policy issues. He is committed to advancing health care affordability and equity.
Categories: Communications, Colorado Medicine, Final Word, Resources, Practice Evolution, Payment Reform, Health System Reform