For decades, health care executives and policy makers have voiced the need for the health care industry to reward value over volume. While there have been promising alternative payment pilots, a vast majority of the US health care system remains financed through fee-for-service payments, meaning that more office visits, hospitalizations, or procedures will generate more revenue and margin. The coronavirus pandemic has challenged this decades-long business model. As elective procedures and office visits declined, health systems across the country lost billions of dollars. Hospitals, integrated health systems, and even independent practices are now facing a financial crisis when patients and families need them most.
Policy experts are increasingly advocating for capitated forms of reimbursement for health systems such as global capitation or budgeting. These are risk-adjusted lump sum payments based on the number of patients a provider organization is serving. In global capitation models, these payments would cover total cost of care. The immediate benefits of capitation during the pandemic are obvious: liquidity-constrained health systems receive cash inflow independent of procedures and office visits performed. There are also long-term benefits to capitation, such as rewarding judicious use of health care resources. However, often unstated are the key challenges and risks that health care organizations must navigate if they plan to execute capitation for their health systems in the long run. We address some of these challenges here.
Consolidated Health Systems Must Find A Balance Between Funding Hospitals And Alternative Sites Of Care
Over the past decade, US hospitals have pursued an aggressive acquisition of physician practices, and the line continues to blur between the two. In 2012, there were 35,700 hospital-owned physician practices, and in 2018, there were 80,000 hospital-owned physician practices, constituting 128 percent growth. The coronavirus pandemic may actually accelerate these acquisitions due to reduced revenues for independent physician practices.
Consolidation changes the calculus of global capitation. If independent physician groups had control over global capitation payments, there is a clear financial incentive for clinicians to scrutinize hospitalizations and emergency department visits and provide greater service levels to patients. For example, CareMore is a physician-payer group (author S.H. Jain formerly led this group) that accepts full responsibility for total cost of care, which has demonstrated 42 percent fewer hospital admissions than the national average. For consolidated health systems that include hospitals and employed physician groups, health care executives face significant pressure on finding appropriate resource allocation to cover fixed and variable costs of inpatient care while also funding alternative sites of care. Striking this balance with a fixed budget is not obvious, and health care…
Read More: What US Medicine Needs To Do To Finally Embrace Capitation