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Disrupting the Payment Model

Article · April 17, 2019

It is a common belief that the underlying business model of fee-for-service medicine is irreparably broken and morally bankrupt.

Many have opined that true change cannot come in American health care until Accountable Care Organizations (ACOs) or Integrated Delivery Networks (IDNs) provide “capitated” care to populations of people, paying providers a fixed amount for each enrolled patient over a set period of time.

We challenge the underlying assumption that capitated care is, by definition, better for patients or the country than fee-for-service medicine. This is a false choice.

As an alternative, we propose a hybrid reimbursement model — an expanded fee-for-service marketplace — focused on where and how we produce our essential services in health care: high-value patient-provider interactions. We need to enable more frequent encounters using digital communications, as well as pay for quality care coordination, instead of artificially bundling these important services into traditional fee-for-service care. In this way, we can better meet patients where they are and pay for the right things. We explain our thinking here.

Challenges of Capitation

A common critique of fee-for-service medicine is that it rewards the overproduction of tests, procedures, and other care. This is quite true. However, the exact opposite occurs in capitation, where the financial risk-bearing entity, be it an insurance company, IDN, or ACO, has an obvious incentive to underproduce care to curb costs.

Neither is superior. From an ethical standpoint, the difference between an error of commission and an error of omission is debatable. From a consumer or clinician perspective, however, there is a clear difference. Delivering the minimum amount of care is frequently much less palatable to both patients and clinicians for two key reasons.

First, humans are driven to act and consume when faced with uncertainty. Led by Amos Tversky and Daniel Kahneman, psychologists and behavioral economists have long chronicled our tendency to make irrational choices in situations of uncertainty and significant personal risk. This is the typical health care transaction. When looking to stay alive and well, individuals’ willingness to pay often exceeds what would be rational, to the point of draining their resources, and then some. This, in addition to startling medical price tags, drives the two-thirds of personal bankruptcies associated with health care in America.

The tendency to irrationally consume health care is not limited to patients; clinicians share the same human tendencies. We are generally not very good at predicting the likelihood of treatment success or survival. As healers at the bedside working with seriously ill patients, it is very hard not to support an irrational choice between an expensive therapy that likely will not work — but maybe might — and the high probability of disease progression. This human desire to continue treatment despite the long odds of advancing sickness, disability, and death is fundamentally opposed to whatever barriers to consumption rationality would insert.

A second challenge with value-based approaches like capitation is that the value of the service is often not known until after the patient-provider interaction. If a physician or nurse practitioner adjusts an individual’s blood pressure medication during a preventive health visit, for example, the value produced by that specific visit may not be known to either party, ever.

As another example, one of us (Chris Dale) is an ICU physician. When he provides critical care services on a given day, he dutifully bills a 99291 for “30 to 74 minutes of critical care time.” From the patient to the hospital to the insurance company to the provider, no one involved in that transaction knows if the fee charged represents an underpayment or overpayment for the services rendered, especially if value is defined by the patient’s future ability or quality of life. In fact, in critical care, much of the value is derived from the relationship between the patient, family, and care team — a priceless benefit. Because of uncertainties inherent in daily clinical medicine, there is a basic human desire for more services, which limits the palatability of capitation.

Disrupting the Payment Model

True innovation in health care won’t arrive until we consider which services we produce, and how we best meet our customers’ desire for quality care at a reasonable cost.

Under the current fee-for-service system, the basic unit of production is the face-to-face visit, and our Current Procedural Terminology (CPT)–based charges reflect the number and complexity of problems addressed or provider time spent. This emphasis on provider-focused care produces waste. Additionally, the cost basis for such a transaction is high, requiring significant professional time and brick-and-mortar facilities.

We suggest a more efficient, patient-centered payment model that embraces digital tools and supports care coordination. Here are three examples from primary care, though the principles apply to clinical interactions in a variety of settings:

1. Discrete, episodic office visits are ill-suited for ongoing preventive health or simple chronic disease management needs. From cancer screening to hypertension treatment to anticoagulation management, we can more effectively improve health by increasing the number and types of interactions with patients. Non-visit-based production represents an opportunity to do so.

2. Sometimes, a patient or family caregiver has a straightforward question. Should I worry about my child’s fever? What should I do about this rash? This exchange is naturally suited to a text, phone call, video chat, or email. Yet these remote interactions largely fly under the current reimbursement radar and are, in essence, bundled into the visit. They are the “death by 1,000 cuts” of primary care: Although each question may take only a few minutes to answer, responding to a handful requires considerable time. That’s unfortunate, because modern communications can be an efficient tool for meeting care needs.

The Centers for Medicare and Medicaid Services’ proposed virtual care changes in the 2019 Medicare Physician Fee Schedule are a good example of a payer moving toward covering an expanding array of telehealth services, including check-ins by phone or other device to decide whether an office visit is needed, and remote evaluation of video or images submitted by a patient. Using a face-to-face visit to deliver simple services is wasteful and fails to leverage advances in communication technologies.

3. Care coordination is also currently largely bundled into visit-based evaluation and management codes. Breaking out the work of helping patients and families get the services they need would allow for more efficient delivery of high-value, patient-centered care. It represents an opportunity to address the waste of uncoordinated care and recognize these important activities, whether in the primary care provider’s office or with the specialist at the hospital bedside.

Sharpening Our Focus

Certainly, the need for face-to-face medical visits is not going away. Physical exams have their place and value, even in today’s technology-driven world. Clinician-patient interaction is key to accurate diagnosis. And relationships with patients and their loved ones not only produce joy for the care team, but they are also a hallmark of high-value, patient-centered care. But we should diversify and modernize the payment mechanisms to reflect the reality of our digitally enabled lives.

Of course, the rules of the road of this expanded fee-for-service marketplace would have to be developed, with important patient-centered protections against fraud and overproduction of care. But we can’t let fears about those possibilities stifle our transformation to produce better care for more people at lower costs.

For America to realize the Quadruple Aim — improving the patient experience, enhancing population health, reducing costs, and supporting providers — we must develop high-value, patient-pleasing services and produce more of them. It’s time to reconsider the false choice between capitated versus fee-for-service care delivery and instead focus on where and how we produce services. We must be relentless in our quest to care for patients more efficiently. Patients are certainly ready. Are providers and payers?

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