ANALYSIS | Capitation vs. Fee For Service: Which Team Are You On?
There is a sharp divide within Connecticut’s healthcare community over how to pay for care that’s as fervent as the Yankees vs. Red Sox split. Some believe that capitation is the holy grail, but others believe that fee for service isn’t the problem and isn’t broken.
But both sides are fighting over something that’s almost irrelevant. It’s a bit like thinking that whether you pay for your ticket to a baseball game with cash or a credit card affects which team wins. Good teams succeed because they are smart; they use data and manage the pitch count, attract great talent and develop a solid farm team, and are lucky to keep great players off the disabled list. The game works because of accountability (umpires) and transparency (instant replay). Healthcare isn’t that different.
Fee for service is just what it sounds like — health professionals and institutions are paid for the services they provide. Fee for service has evolved and improved over the years; most now include features to encourage better care from simple prior authorization to sophisticated bonuses for quality and efficiency. Team Capitation argues that fee for service drives over-treatment since it pays more for more services. This may be true in plans where providers are well compensated, but if providers lose money on each service, as in Medicaid, that argument falls apart. Team Capitation also asserts that fee for service inhibits innovation, but we pay for many things individually, like computers, that have improved immensely over time.
Under capitation, health systems or practices are paid a set amount per person, depending on age, sex, and health needs. In capitation, per person fees are paid whether or not people get any care. Capitation or “managed care” was all the rage in the 1980s and 1990s but failed spectacularly in Connecticut. More recently, proponents are using other names for capitation to avoid its bad reputation. You may hear it called global payment, population-based payments, or in the latest bad idea floated, it is called “bundled payments” which has a very different, and less risky, meaning in health policy. Team Fee For Service assets that capitated providers are paid whether or not people get services, so they have an incentive to deny needed care. Capitated plans usually include some quality requirements, but those standards are very low and not linked to people’s health outcomes.
Our state Medicaid system has saved hundreds of millions of tax dollars every year since 2012 when we fired the capitated managed care organizations and moved to a fee for service model with bonuses for care coordination and quality. At the same time, people are getting better care from more providers who now participate in the program.
Both sides blame the other team’s model for all that is wrong with healthcare. For instance, for Team Capitation believes the fifteen-minute doctor visit results from fee for service’s incentives to churn patients through quickly, but Team Fee For Service blames the capitation model that pays doctors whether or not you get any care. In fact, if the patient is homeless or needs to improve their diet, fifteen minutes more with a doctor is unlikely to be helpful.
Doctors, nurses and other providers entered their professions to help heal people and keep them healthy. How they practice is influenced by their education, culture, habits, experience, patient needs, and new research. It’s insulting and largely inaccurate to assume that individual healthcare providers are mainly motivated by money.
Everyone — insurers, government, providers and especially consumers — wants better “value” from our substantial healthcare investments but tweaking contracts and hoping an “invisible hand” will get us there misses the point. We know that the most important determinants of health are non-medical; we need to invest in proven public health initiatives. We need to make the healthcare system more competitive, ensure that we are getting our money’s worth, and that industries can’t price gouge. We need data, actionable research on which treatments are worth the price, and a robust health information exchange to limit fragmentation and duplication.
We need to stop the fierce rivalry and overheated promises by payment model proponents and get to work on fixing what really ails healthcare in Connecticut.
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