7-Capitation and Global Payments

MODULE 9 | Section 7 of 12

Capitation and Global Payments

POPULATION-LEVEL BUNDLING

Another way to “bundle” payments is at the population-level. In a capitation model, providers receive a fixed per person (“per head”) payment that covers all health services over a defined time-period. Unlike some prior capitated models, newer models hold providers accountable for high-quality outcomes as a key component of the payment structure, to ensure that providers do not withhold necessary care.

 

Drs. Brent James and Gregory Poulsen from Intermountain Healthcare argue capitation models encourage providers to reduce waste across all levels and “give patients and physicians the freedom to make the treatment decisions they think are best.”1

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*Triangle icons indicate whether the payer (insurance company) or provider organization receives savings from waste reduction.

 

ACCOUNTABLE CARE ORGANIZATIONS

ACCOUNTABLE CARE ORGANIZATIONS

 

Accountable care organizations (ACOs) represent an experiment in global payments and shared risk, and were included as part of the Affordable Care Act. They are really a hybrid of the more traditional FFS system and true capitation.

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According to CMS: “ACOs are groups of doctors, hospitals, and other healthcare providers, who come together voluntarily to give coordinated high quality care to their Medicare patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.”2

When an ACO delivers high-value care by improving outcomes that matter to patients and lowering costs, then it shares in the savings that it achieves.

 

Some of the early results of ACOs have been optimistic, showing gains in healthcare quality2 and possible slowing of associated healthcare cost growth,3 but it is important to keep in mind the sober words of former CMS administrator Dr Don Berwick that ACOs are a “promise, not a panacea.”4

 

As mentioned earlier, the concerns with capitated and global payments are that they could potentially incentivize underuse (or rationing) of necessary services. In addition, it can be challenging to address outcomes and quality on the population-level. “Capitation and its variants reward improvement at the population level, but patients don’t care about population outcomes such as overall infection rates; they care about the treatments they receive to address their particular needs,” state Porter and Kaplan.5

 

While it seems these two strategies (episode-based bundled payments and capitation) – and their proponents – may be standing in opposition, others have offered that these two mechanisms could complement each other.

 

“The central issue in any proposal for aggregating payments is determining at what level services should be bundled together,” wrote health economists David Cutler and Kaushik Ghosh.6 “Episode-based bundled payments are easier for individual physicians or small physician groups to manage, since a given physician is often involved in the full course of a care episode. In contrast, accepting global payments for all of a particular patient’s care generally requires a high degree of integration among multiple physicians.”

“[Capitation] is the only payment system that fully aligns providers’ financial incentives with the goal of eliminating all major categories of waste.”

Brent James MD
Vice President and Chief Quality Officer
Intermountain Healthcare

REFERENCES

  1. 1-James BC, Poulsen GP. The case for capitationHarvard Business Review. July 1, 2016.

 

  1. 2-Navathe AS, Song Z, Emanuel EJ. The next generation of episode-based paymentsJAMA. May 2017. doi:10.1001/jama.2017.5902

 

  1. 3-Zirui S. Accountable care organizations in the U.S. health care systemJ Clin Outcomes Manag. 2014;21(8):364–371.

 

  1. 4-Berwick DM. ACOs — a promise, not panaceaJAMA. 2012;308(10):1038-1039

 

  1. 5-Porter ME, Kaplan RS. How to pay for health careHarvard Business Review. July-August 2016:88-100.

 

  1. 6-Cutler DM, Ghosh K. The potential for cost savings through bundled episode paymentsN Engl J Med. 2012;366(12):1075-1077.

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