More on the "C" Word: This Blog Had It All Wrong About Capitation

This Disease Management Care Blog welcomes this alternate point of view from a veteran health insurance insider. While this was orginally a reply to a prior posting, the DMCB thought the points being made deserved special attention.

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In a previous posting, Jaan Sidorov criticizes the supporters of accountable care organizations (ACOs) by using the supposedly ugly ‘C’ word. That’s right: ‘capitation,’ which is another way of setting a global budget that would incent providers to work together.

Is that really such a bad thing?

If the resistance to capitation and ACOs is that people don't like "the same old bag of tricks" then that's fine as far as it goes. But if the skepticism purports that these "tricks" have the net result of lowering quality care or failing to lower costs, what is the evidence?

There isn’t any consistent evidence that the quality of care went down in the mid 90's when the managed care approaches to increasing quality and lowering cost inflation were at their peak. There is certainly strong evidence that they helped lower costs. Capitation emboldened insurers in their negotiations with providers, bringing about a flatlining of cost trends during those years. Is it any accident that this was also a time of significant business growth that helped the Clinton Administration to erase the Federal deficit?

The single article that was cited in the posting about the abuses of capitation doesn't support the claim that capitation is necessarily bad or that it’s bad when providers are responsible for costs. Nowhere does the casual reader see evidence of lower quality care, higher mortality, etc.

Instead, this is what the authors of the study really said:

"Groups rarely denied requests for referrals and tests. Seventy-seven percent of groups indicated that they infrequently (less than 10% of the time) denied high-cost procedures and tests (cost greater than $500), and 86% infrequently denied low-cost procedures and tests ($200 or less). Patients or providers appealed an average of 17% of denied requests, and the groups reversed an average of 35% of these decisions."

Given Americans' over-utilization of questionable services, the fact is that there is reasonable evidence that utilization of high-end care doesn't have a significant impact on the outcomes that count. While unfettered capitation is not the ideal solution, other approaches to care, such as integrated delivery systems with salaried physicians may be an idea whose time has come. That, of course, is a steep uphill climb in most of America.

Back to the Future with Capitation?

The Disease Management Care Blog asked the insightful Gordon Norman, MD, the Chief Science Officer at Alere and Chair-Elect of the DMAA Board of Directors to weigh in on that phenom called “capitation.” As readers of the DMCB may recall, there was a prior post on the topic. Gordon shares his erudite West Coast insights. For your reading pleasure:

For a time in California, “global capitation” was provided to medical groups and their closely affiliated hospitals with risk for total cost of care. Its intent was improved care coordination, less over/underuse of appropriate services, savings from avoidance of unnecessary care and reduced admissions/ER utilization. The economic benefits could appropriately flow among all the parties sharing the global capitation for distributive justice. For Medicare Advantage populations, this was so lucrative for many provider groups that some stopped taking new FFS Medicare patients so they could expand their MA populations! In 1994 when national penetration of Medicare Advantage – then called M+C – was 6% market share, the market share in California statewide was >25% and in some counties in southern CA, half again higher.

Those were the days. While capitation is still alive and well in many settings, the wages of the current actuarial equivalent of FFS Medicare fees are high cost and poor quality. Our fundamental challenge is to change that for chronic illness by “self-funding” better care coordination from its savings potential. Since that was and still is the essence of the disease management’s value proposition from the outset, proposals to use capitation to pay providers for care coordination seem to have a parallel here. In my opinion, a professional cap without a global cap that only covers defined ambulatory services/risk will not necessarily lead to direct savings in health care costs. In addition, if there is reduced inpatient utilization, the lion’s share of the economic benefit will flow to payors or other at-risk entities, which will disrupt the equitable sharing of economic pains/gains. In other words, physicians won’t have skin in the game and distributive justice will be lacking.

A big challenge is how to put the right skin in the game – yes, financial risk – for the providers who accept a monthly fee for doing care coordination. Should a portion of these fees be at risk, as is still the case for most disease management vendors? How should quality and utilization measures be used to calculate some hybrid form of a care coordination cap plus P4P? Should there be any expectation that poorly executed care coordination warrants lower payment than high quality coordination, which over the long run should yield better health and cost outcomes?

Assuming some sort of global gain share could be created, the care coordination cap would need to be incrementally funded. Since total health care spending is a zero-sum game, the funding would need to flow from those who benefit economically from the improved care coordination, namely CMS and commercial insurers. If it can be shown to work like “gain sharing in advance”, then payors should be able and willing to do this as they will likely gain more than they will pay out for this care coordination - assuming this is done well. That is a big assumption.

We all know how deaf the world is to the argument that disease management should exist whether it reduces health care costs or not, as long as it produces quality gains in cost-effective manner. The threshold that separates cost-saving versus highly cost-effective interventions is a political one more than a logical one. The same may well happen to advocates of using capitation to fund care coordination.

Dorsey and Berwick: Back to the Future with Capitation

The disease management blog would like to alert its readers to a perfect world of healthcare, where doctors jettison individual opinions of scientific merit. Where enlightened physician leaders can, with one meeting or one email or one EHR screen pop-up, change provider behavior. Where clinical outcomes, not return on investment, drive capital allocation. Where doctor’s salaries correlate with work effort and garner unrivaled professional satisfaction. Where is that place you ask? According to the Boston Globe editorialists Drs. Dorsey and Berwick, just pilgrim north, cross into Katmandu and navigate the Big Dig. Then gaze into the past and look for that great shining light on the hill, that paradise of professionalism, that citadel of care, the cornucopia of coordination, that of capstone of capitation, Harvard Community Health Plan ("HCHP").

While they were penning their editorial, Drs. Dorsey and Berwick must have been Googling the Disease Management Care Blog, because our examination of “Gaydolf”-style capitation presaged many of the themes in their Boston Globe editorial. As readers of the blog may recall, I argued that the “care coordination” 30% premium layered on top of a mathematically neutral capitation payment was used by some physicians in some settings in the past to build “systems” of care. Drs. Dorsey and Berwick tell us that HCHP was one of those settings. They also recognize the majority of other clinic settings neglected to put that 30% to work and were “hijacked” by dysfunctional incentives that pursued profits not patients. They suggest capitation got a bad rap because the success of HCHP didn’t get the attention it deserved. They think Gaydolf shouldn't be a dirty word. He got a bum rap. He wuz robbed.

In the opinion of the disease management blog, their treatise is not only confused, it’s naive. It’s confused because the HCHP progeny's considerable achievements under capitation have also been matched by considerable success in a non-capitated environment. It’s naïve because the practice settings described by Dorsey and Berwick have very little in common with the present-day, entrepreneurial, independent-minded, non-salaried physician-owned practices that occupy the majority of health care delivery in huge swaths of the United States. Toss in a cup of non-generalizability along with a generous dash of hubris and their vision sure tastes great but is filling... Not. There is no way Old-World capitation will work in the mainstream of typical office settings because it’s not fundamentally linked to the flowering of “systems” of care so beloved by the editorialists. Oh, and by the way, many independent physicians don’t think capitation is merely a “dirty word,” they loathe it as the Anti-Christ of Healthcare.

The disease management blog’s more seasoned - and humble - examination pointed out that a new and improved version of partial capitation – in addition to traditional fee for service – could be channeled into explicit chronic illness-linked, modern, risk-adjusted variants of population based chronic care that builds on patient registries, non-physician teaming, patient coaching and self care. This has less to do with “capitation” and much more to do with creating targeted cash flows that fund the Medical Home and/or disease management and preferably both.

Old capitation is Gaydolf-oid. Modern versions of population-based partial capitation Obama-oid. Which would you pick?