Tuesday, January 13, 2009

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.


Anonymous said...

No matter how you slice it, it is the perceived fairness/value by both parties that never seems to mesh. In FFS it boils down to the fact that it is easier to see 3 hot ears than spend 30 min on a procedure that wil pay less. In capitation it is easier to refer a PAP than get paid zero. The devil is always in the details. Patients, Docs, and Insurance all value things according to their own unique universe. Perhaps when all unite in nirvana, values will coincide and FFS or capitation will work equally well.

alan lazaroff said...

PCMH payment in the Medicare demo and I think most if not all other current iterations involves a FFS payment, a fixed risk-adjusted care management monthly fee, and a risk or gainshare element. It's a blended payment method. The comparison to the capitation approach managed care plans used is a stretch.

Those payments were not risk-adjusted. A single capitation payment covered all the care the patient required from the PCP. Thus, the best approach for an economically rational actor was to try to avoid all the sick patients (who might actually need your services), refer out as much as possible those who managed to sneak through even though they had medical needs, and fill your panel with healthy people.

This has no resemblance to the incentives in the PCMH.

Jaan Sidorov said...

alan: in the days that followed this post and as I thought about it some more, the same argument occurred to me. well done... great minds. however, i'll stick by my guns. here's why at two levels:

1) you're right, the current iteration of the PCMH involves a mix of ffs and capitation. history suggests us physicians will want services under ffs moved to cap and services under cap moved to ffs. i wonder, therefore, if medical home participating physicians will eventually seek to have the one-on-one encounters moved to a capitation arrangement and their medical home services (email, patient education are two examples) unbundled and moved to ffs. silly? maybe not because physician payment is a journey, not a destination and docs are never satisfied with the amount or mechanism of payment.

2) in the old days, capitation was age and sex adjusted and there was movement toward further risk adjustment until the backlash put the kabosh on it. it's interesting that at the time physicians turned their back on a type of capitation arrangement that was risk adjusted, unless the fickle sine wave law is correct.

that being said, this is a blog with an opinion of one that truly appreciates the feedback. maybe the truth is somewhere between my stretch and your doubt: that we are witnessing a business cycle that moves between bundling and unbundling, fees and caps?

thank you alan!