The Anatomy of Paying for Health Care: Capitation

Our country's experience with capitation was the HMO craze of the 1990's.  At first it was hailed as the answer to cost control; but it grew big, strong, and eventually uncontrollable.  Physicians hated it for telling them what they couldn't do, patients hated it for telling them what they couldn't do, and, in general, businessmen congratulated themselves for their brilliance.  However, it became so unpopular and politically unsavory among the general population that the attempt was abandoned by most and the system reverted back to fee-for-service (FFS).

"HMO" has, to many, become a dirty word.  Why?  What was the promise, why did it turn out so badly, and why should we care now?  Capitation, I assure you, is reemerging.  It persists because it is a potential solution for two critical problems: controlling the cost of care and coordinating care between providers.  Understanding the concept and the lessons learned with HMO's will not only make you seem smart - and thus gain the respect of your peers - but also better understand experiences with your own physicians.

Capitation, in the broadest sense, is the process of paying a fixed rate for an agreed upon set of services.  There are many iterations of capitation, each with their own consequences.  We will work from simple to complex using asthma care as an example.

In the first example, an imaginary patient with asthma, Jenny, gets all care from a single physician.  You get the role of the insurer.  You have a FFS relationship set up with the doctor; he is seeing Jenny often and also has a tendency to use a lot of expensive tests and technology.  The bills from this doctor are killing you so one day you call up and make a deal.  You will pay the M.D. $60 per month to take care of all of Jenny's needs.  If the cost of Jenny's care is less than your payment, the doctor keeps the difference; if the cost of care is over the amount, he has to pay out of his own pocket and take a loss.

How does this change things for the physician?  Now he thinks twice before getting an expensive test or telling Jenny to come in for a checkup.  Now the provider, the stakeholder that has the greatest ability to control the cost of care, has an incentive to reduce costs.  The risk is that the incentive may be too strong and perhaps the physician will give inadequate care, trying to keep Jenny out of the office and not doing the necessary tests to keep her well.  Remember, every test and act of care is now money out of his pocket!

What is the answer?  Will little Jenny make it?  Will the vision of an endless shower of money corrode our good doctor's moral fortitude?  Will the author of this blog ever overcome his social awkwardness?

Maybe.

Next post we get into the nitty gritty...

The Anatomy of Paying for Health Care: Fee-for-service

How do we pay for health care?  How does it change what doctors do?  Why do we care?  These, among many other questions that have never spontaneously entered your mind while staring in a mirror, vex me;  How money flows, in my humble opinion, shapes most (if not all) aspects of health care.

Changing the architecture of reimbursement to health care providers has been a constant theme of increasing importance over the past 30 years.  I am currently reading a book "Innovators Prescription" that described fee-for-service (FFS) payment as a runaway nuclear reactor in our health care system - I did a fist pump as a read this.  I cannot guarantee you will descend to my level of nerdy wonkishness but I can say, with confidence, that you will understand the power of that statement by the end of the post.

FFS is a style of payment in which a provider is reimbursed per action or procedure.  For example, if you see a doctor for a cold, she will make more money if she does a strep test, takes a chest x-ray, and prescribes antibiotics than if she just told you it was viral (which it likely is), that medication wouldn't make it better (which it won't), and sent you home with instructions to rest and drink hot tea.

A physician that gets paid per "thing" has a strong financial incentive to do more "things".  What are the pros and cons?   The upside is patients are more likely to get too much medicine than not enough medicine.  The other upside - for physicians - is that FFS is an extremely profitable way to bill for medical care.

The downside?  Too much medical care can be harmful, actually very harmful, and routine excessive care drives up medical costs globally.  Higher costs of care eventually lead to higher insurance premiums for you and me.  Some estimate that 50% of all health care spending is supply driven by physician and hosptials rather than the needs of patients.

FFS was the style of payment used in the early 20th century when medicine was simple and relatively cheap.  Physicians, concerned with preserving autonomy and reimbursement levels, have historically advocated to maintain FFS.  This, until recently, has worked out pretty well for doctors.

Times have changed however, one person is no longer treated by one doctor - the average patient has 2 primary care providers and 3 specialists.  What happens now when each member of the "team" only gets paid per thing and we have a plethora of expensive tests at our disposal?  Everyone does tons of stuff and efficiency goes out the window.

Let's take it further.  Let's say we want physicians to collaborate, and make care more cost-effective.  Collaboration requires money up front to invest in technology and administrative infrastructure.  What happens if it works?  People will be healthier and visit the doctor less.  The doctor makes less money.  Essentially, with FFS reimbursement, a doctor working on coordinating care needs to pay money up front with the hope of eventually make less money.

What can we expect out of a health care system if doctors only stand to make money when patients are sick?  With FFS ill patients are profitable patients.  The more sick a patient is, the more tests can be run, and the more money a provider makes.  Shouldn't physicians make money by keeping people healthy?

The truth is that money does matter in medicine.  We must be aware of how it moves because it shapes even the most intimate diad of medicine: the physician patient interaction.  Coming up is a discussion of capitation: its promise, how we learned to hate it, and why we could learn to love again.

Enjoy, be informed, and above all, cultivate an intelligence intimidating to your peers...

Affordable Care Act: Health Care Reform in 10 Minutes

After a brief hiatus I have returned to share the manna of a public health degree - to those who consider such knowledge valuable.  I would like to continue the discussion of the Affordable Care Act.

I initially presented the PPACA in terms of its titles.  However, for the sake of both brevity and clarity I'm going to change my approach for this post.  Addressing each title individually is unwieldy; instead, the discussion will be organized into broad categories of reform, all pertinent to our experience as patients and consumers of healthcare.

There are three major themes to the reform: mandates, subsidies, and insurance reform

Mandates:

We have discussed the individual mandate previously and why the mandate is a complement to health insurance reform.  The individual mandate requires a person to pay 2.5% of their income or $695 dollars, whichever is greater.

Also in place is an employer mandate in which companies above 50 persons are penalized for not providing insurance or placing too much of the cost on the employee.  The penalties range from $2,000 to $3,000 per person and are a considerable source of planned revenue to support the subsides of the ACA.

Both mandates are set to begin in 2014.  The individual mandate will initially begin with diminished penalties, the penalties will increase over the following year to the full amount.

Subsidies:

With the mandate in place, how are we going to get health insurance?  The government helps out in three ways: Medicaid reform, Insurance Exchanges, and Tax Subsidies.

Medicaid Reform


Recall from a prior post that Medicaid provides coverage for those in poverty.  However, Medicaid isn't available to everyone without means; instead there is "categorical eligibility" meaning only certain sub-groups of the impoverished are able to receive coverage: pregnant women, children, the aged, and disabled individuals.  Children are actually covered under a similar but separate program, the State Children's Health Insurance Program (SCHIP).

It sounds complicated but don't worry, you can forget it.  PPACA has gotten rid of SCHIP and then expanded the coverage for Medicaid.  Under new law, anyone under 138% of the poverty line is eligible for Medicaid.  It is an impressive move to increase coverage and a focal point of controversy.  Some view it as a positive move toward ensuring coverage for our entire population others see it as the expansion of an already costly system.

Insurance Exchanges


I'm going to refrain from re-explaining insurance exchanges (see the last post) and will just say that they are a state run program which allow individuals and small groups to purchase health insurance for a reasonable price.  More interesting is the subsidy system in place to ensure that individuals can purchase insurance through exchanges.

First, the ACA divides insurance plans into four tiers based on actuarial value - the percentage of health care costs covered by the insurer.  The document categorizes them as "bronze" (covers 60% of medical costs), "silver" (70%), "gold" (80%), and "platinum" (90%).

I want to submit the request for a platinum coated platinum plan in which the insurance company actively pays me for seeking health care...just a thought.  In all seriousness though, this scale is important because financial support for purchasing insurance is based on the pricing of "silver" plans.

Exchange subsidies are available for those citizens whose income is up to 400% of the federal poverty level ($93,700 for a family of 4 in 2014).  One is responsible to contribute at least 2% of household income to the purchase of health insurance.  As income levels approach the 400% mark, the percentage contribution increases in steps to 9.5%.  If you are below 138% of the poverty level, the entire cost is subsidized.

Tax Subsidies


Small business receive tax credits as an incentive to provide insurance to employees.  The maximum credit is 50% of the employers cost of insurance premiums.  The amount of credit declines as a businesses approaches 25 people or an average wage of $50,000 annually.  Small businesses are not penalized for not offering insurance but, as mentioned previously, larger businesses must pay a fine for offering no or inadequate insurance.

Insurance Industry Requirements:


The regulation of the insurance industry was the central theme of the past post.  This portion, particularly the part mandating coverage regardless of pre-existing conditions, is seen as one of the major humanitarian victories of the ACA.

Recently insurance premiums have been rising.  Many insurers claim that premium increases are a result of the requirement to cover patients with pre-existing - and expensive - conditions.  The administration's stance is that many premium increases were planned beforehand and the bill is being used as a convenient rationale.

Regardless, insurers will be subjected to increased regulatory scrutiny for increases over 10% and be required to provide public justification for any such increases.  Existing rate review process are spotty, some states not even having a regulatory mechanism in place.  The ACA provides funding to bolster existing programs and create new programs in states without.  Historically, state level regulation has been poorly organized and ineffective.  The ACA does not change the state run model but rather expands and supports it, leaving uncertainty if the insurer rate review process will be substantive.

Other Provisions:

There are several other components of the bill that are yet to be addressed.  The ACA invests in public health interventions, creates a third party entity to research which treatments are best, expands the role of non-physician providers, and experiments with new ways of paying for medical care.  Many of these topics deserve their own discussion and will be addressed in the near future.

Conclusion:

In describing the PPACA, initially in terms of its structure and then later in terms of conceptual themes, we have a conceptual framework on which to build and understand future discussions of health policy. Obviously, the exploration of the bill was truncated - as is any attempt to discuss a 2000+ page document in about 10 minutes - but in subsequent writing I will continue to revisit the ACA both to provide legislative context as well as incrementally develop a more thorough understanding of what the bill means to us as citizens.

For those wonks chomping at the bit for more, the following are excellent resources for exploring and understanding PPACA on your own:

Kaiser Family Foundation's Health Reform site

Commonwelth Fund's Health Reform Resource Center

Robert Wood Johnson Foundation's Health Policy site

www.healthcare.gov

Enjoy, be informed, and, above all, cultivate an intelligence intimidating to your peers...