The Fickle Sine Wave of Provider Payments and Implications for the Patient Centered Medical Home

The Disease Management Care Blog has been thinking about the Patient Centered Medical Home. In yesterday’s post, it reviewed a New England Journal of Medicine piece that noted one of the virtues of the PCMH is that it will be paid for by a ‘set fee.’

While it was a medical director in the not too distant past, the Disease Management Care Blog was once told by a veteran health insurer executive that hospitals always seem to pine for one of two contrasting payment methodologies: either ‘per diem’ or ‘DRG.’ The former is ‘per day’ or a payment for each inpatient day. The latter is a global payment, based on a diagnosis (or 'Diagnosis Related Grouping'), for the entire patient stay regardless of how long the patient is there. Under the per diem approach, the longer the patient is in the hospital, the greater the money. Under the DRG approach, the less time the patient stays in the hospital, the greater the money.

And how can you predict which payment system a typical hospital will prefer, asked my mentor? Simple, he said, it’s the one they’re not under. Under the per diem arrangements, hospitals are generally subjected to ‘concurrent review’ or getting regular phone calls from the insurer asking about the status of the patient; if the patient isn’t acutely ill, concurrent review can lead to a lower per diem payment or even a decision to deny coverage (and it works). In addition, hospitals generally feel the per diem payment is not high enough. Under DRG payments, there is no concurrent review, but hospitals have a large incentive to discharge the patient, since the longer they stay, the greater the financial loss. In addition, hospitals generally feel the DRG payment is not high enough.

If per diem reminds you of fee-for service (payment for each service instead of each day), it should. Ditto capitation and DRGs: the former pays for a patient’s care over a month regardless of how complicated the patient’s care is.

The DMCB has been thinking about this because it believes physicians are not unlike the hospitals when it comes to the grass-being-greener-on-the-other-side approach to reimbursement. During the 1990’s, many primary care physicians welcomed capitation because fees were otherwise being denied and they weren’t high enough compared to what could be made under a capitated fee schedule. And capitation did well at first but, as readers will recall, it had many problems including its built-in incentive to undertreat. The backlash led to the return of fee for service.

Guess what: while most descriptions of the proposed payment mechanism for the PCMH don’t call it ‘capitation,’ that’s exactly what it is. And while the PCMH is good and righteous and has many redeeming features, the DMCB has to wonder if part of its attraction for physicians has less to do with its clinical advantages and more with it simply being an alternative to the tiresome nickel and diming of fee-for-service with denials, prior authorizations and underpayment.

And so the cycle goes. The DMCB predicts, assuming the PCMH has legs, that physicians will eventually seek ways to unbundle the services of the medical home so that they can get paid “fairly” for all of the individual work elements involved in coordinating care. Until, that is, they’ll want to be given a global payment.

And so the cycle goes.