Capitatation, a.k.a. Bundled Payments a.k.a Monthly Coordination Fees: So...Why Are They Such A Good Idea?

The Disease Management Care Blog's world is filled with unanswerable mysteries. Is Lady Gaga an eggample of musicianship or has she become some type of bad yolk that's no longer funny? Do modern presidents never dye or do they just gray away? Are bundled payments really the answer to the physicians' income needs?

Lady G and the President resist analysis, but the DMCB thinks of bundling as a version of capitation, where providers are paid with a fixed periodic global payment (per "caput" or head or person) on a periodic (usually monthly) basis. Its purpose is to reimburse the doctor for a packaged suite of medical services. Under "full" capitation, docs are obliged to rely on the payment for practically all services such as office visits or check-ups. While capitation results in a steady cash flow whether patients are seen or not, the downside risk is that the patients' costs may exceed the monthly payments. As a result, physicians may have an economic incentive to withhold services.

More modern versions of primary care provider payment are trending toward a mix of fee-for-service (FFS) and capitation. In other words, physicians are free to bill the patient (or the insurance company) for each face-to-face encounter (where a fee is generated for each service). But over and beyond the FFS, physicians can get an additional per person payment that covers the cost of a suite of additional services, such as other communication (like emails), patient education and coordination of care. This hybrid payment model isn't referring to it as "capitation" but euphemistically describes it as a "monthly care coordination payment" or a "bundled care coordination fee."

What seems to really get the DMCB's physician colleagues excited is the prospect of "risk adjusted" monthly payments. It's complicated, but the idea is to shift more capitated dollars toward patients who require more services based on characteristics such as advanced age or the presence of co-morbid conditions. So, while the monthly payments can range between $5 and $30 per patient per month (PMPM) it makes sense to remit the higher payments for older patients with conditions like diabetes or, for example, those who have been in and out of hospitals with heart failure.

Sounds good, right? Docs can have their FFS cake and eat the capitation too!

The DMCB doesn't think it quite works out so simply because:

1. Insurers rarely find "new money" in its premium dollars. A common approach is to take any scheduled premium increases and use them to pay the PMPM fees instead of increasing the fee-for-service payments. In the end, the physician community isn't really being paid any more. Some are being paid more (thanks to risk adjustment) but that mathematically means others are being paid less.

2. Risk adjustment is a notoriously inaccurate both inside and outside of primary care. As the DMCB understands it, much of risk adjustment is mathematically based on "binary" functions (for example, there is diabetes or there isn't; it fails to account for poorly controlled vs. well controlled disease) and doesn't to account for other conditions that aren't easily detectable that may also drive utilization. As a result, only a fraction of utilization is accounted for, leaving the physicians to deal with the rest.

3. Last but not least, risk adjustment is subject to the same downward pressures that are being applied to all those other good ideas making up the payment systems such as DRGs, RVU conversions, the SGR and even the notorious fee-for-service payments. The DMCB suspects that the bundled payments may seem like a bonanza now, but just wait. The money will dry up faster than Dr. Berwick's admiration for the British health care system. Physicians will be squeezed between trying to make a profit by withholding care or depleting their inadequate capitated fees by providing substandard care.

So why are bundled fees and partial capitation payments systems such a good idea? The DMCB will continue to go ova this this but it isn't expecting to make much headway.