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Landon lands on the major issues about capitation

Posted Feb 02 2012 8:47am

Bruce Landon offers an excellent summary in today's New England Journal of Medicine about the necessary conditions for a capitated, or global, payment regime to be successful. He notes:

The fundamental questions become how ACOs will choose to divide their global budgets and how their physicians and other service providers will be reimbursed. Thus, this system for determining who has earned what portion of payments — keeping score — is likely to be crucially important to the success of these new models of care.

Under ACOs and many commercial global payment products, providers will continue to receive traditional fee-for-service payments, and hospitals will receive their usual contracted payments, through either the diagnosis-related-group (DRG) system or per diem payments. All spending for each patient that is attributed to the ACO will then be tracked and compared with the calculated budget retrospectively at the end of the performance year in order to calculate savings or losses. Thus, standard fee-for-service payments remain the de facto method for keeping score, which works against the very design of the program. The inequities of the fee-for-service system, which reward proceduralists and specialists at the expense of cognitive specialties and primary care, remain embedded in the payment system. Although organizations can receive surplus payments, additional revenue from any surpluses will not flow into organizations until at least 18 months after the program begins.
My regular readers may recall that I raised a similar point last year , when I noted:
Now, though, let me let you in on a little secret with regard to capitated care. Underneath the global budget, there is still a fee-for-service arrangement establishing the transfer prices among the providers in a network. That GI specialist will still get paid for each colonoscopy. The big thing to work out in this system is the allocation of any surplus or deficit in the annual budget among the various specialists.

Unless that allocation is skewed heavily towards primary care doctors, decisions about the level of care given will not change. But, if the allocation is skewed too heavily towards the PCPs, there is no real income signal for the specialists, leading to a danger that they will not feel invested in the end result. Unless the system is accompanied by intensive, real-time reporting, along with clear penalties for excessive care, it will not work.
Bruce appears to concur, further explaining some necessary conditions for success:
As global payment systems are currently designed, primary care physicians stand to be among the big winners. However, to earn rewards, they will also have to shoulder the largest burden of the work needed to succeed under risk-sharing arrangements. . . . To accomplish the care-management and quality goals, however, primary care physicians will need substantially more resources — for hiring care managers and other personnel to pursue population health management, for coordinating and managing care, and for implementing processes to ensure adherence with quality measures.
He concludes:
The health care system is placing tremendous hope in changing incentives to control the ever-increasing costs of care. Hybrid approaches such as ACOs that incorporate global incentives but continue to keep score using fee-for-service payments will face serious challenges as they attempt to place increasing burdens on the already-stressed primary care system without providing additional resources for achieving the aims of global payments — slowed growth in costs and higher-quality care.

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Landon lands on the major issues about capitation

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