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.