What US Medicine Needs To Do To Finally Embrace Capitation

“In 2012, there were 35,700 hospital-owned physician practices, and in 2018, there were 80,000 hospital-owned physician practices, constituting 128 percent growth. The coronavirus pandemic may actually accelerate these acquisitions due to reduced revenues for independent physician practices.

[..] For consolidated health systems that include hospitals and employed physician groups, health care executives face significant pressure on finding appropriate resource allocation to cover fixed and variable costs of inpatient care while also funding alternative sites of care. Striking this balance with a fixed budget is not obvious, and health care executives may need to divest from more expensive hospital-based labor and capital over the long run.

Despite calls for increases in the primary care workforce, the number of specialists has outstripped that of primary care physicians. In 2005, primary care physicians comprised 44 percent of the physician workforce, and in 2015, they comprised 37 percent of the physician workforce. [..] From 1999 to 2009, the probability a patient would be referred to a specialist increased from 5.8 percent to 9.9 percent. This corresponded to an absolute change from 22 million to 51 million visits, a 132 percent increase. These referral rates were lower for providers in managed care contracts.

[..] Ultimately, specialists have to be paid in a way that makes them partially responsible for total cost of care. This can be done by providing capitation payments to specialists based on percentage of premiums from health plans. Provider groups could also use their global budget to implement fee-for-service with financial incentives for primary care engagement, which is still weak among specialists today.

What’s evident from the pandemic is that procedural specialists garner more financial importance from health system leaders in a fee-for-service model. Capitated models could weaken this standing in favor of adept generalists who can coordinate care and adopt lower-cost solutions to involve specialists, such as electronic consults.

[..] Backlash from locking patients into a provider network is still possible if provider organizations implement capitation. However, if narrower choice of physicians led to a better experience for patients with higher degrees of coordination and information liquidity—and lower costs—patients might be willing to embrace narrower networks of care. This seems to be at play with the Kaiser Permanente health plans, in which patients are limited to physicians from the Permanente Medical Groups but also experience higher service levels and integration of their medical information across sites of care.

[..] Unlike other countries, a hallmark of the US health care system has been a fragmented payer system. Providers are simultaneously receiving payments from Medicare, Medicaid, and commercial payers. With capitation and fee-for-service providing different incentives, it will be difficult to navigate various contracts from payers. One way this could be mitigated is if providers enter multipayer contracts that harmonize capitation, rather than negotiating separately with each payer. This will allow providers to take care of patients under one payment system.

Ultimately, no payment system will reward all stakeholders equally. In the case of global capitation, specialists and hospitals will face greater scrutiny on their value proposition for patients in the long run. Whether or not health care executives decide to execute capitation is dependent on their view of the pandemic. If this pandemic is viewed as a temporary crisis that simply needs to be controlled, a health care executive may rather pursue government aid and a return to their status quo business model. If this pandemic is viewed as an opportunity to fundamentally change our health care system, these challenges would be worth addressing to finally build a reimbursement strategy that bolsters primary care, encourages care coordination, and disincentivizes waste.”

Full post, Arora VS and Jain SH. Health Affairs Blog, 2020.11.3