Are Primary Care Physicians (PCPs) Important to ACO Success? Payment Arrangements Say Otherwise

Long ago, the Population Health Blog learned that when it comes to health insurance, capitation or bundled payments brakes, while fee-for service payments are gas. Too many physician office visits?  Use "capitation" brakes. Want to increase physician visits?  Apply a payment for each encounter with some FFS gas. 

Health care organizations can pass this arrangement onto their physicians. They can pay them with a salary (a form of capitation), or a variable "productivity" compensation (seeing more patients is compensated with a form of FFS) or with a combination of both.
 
Simple, right?  To figure out this ying-yang of utilization management, just follow the money.

That's why the PHB was interested in this just-published Annals of Family Medicine paper on how primary care physicians are being paid by Accountable Care Organizations (ACOs). If you believe more primary care visits translate to savings in other parts of the ACO, then you'd want to apply gas. If you believe primary care visits are a cost that doesn't necessarily save money, you'd want to apply the brakes.

The authors used data from the 2012-2013 "National Survey of Physician Organizations" to compare primary care physician (PCP) compensation in ACOs with non-ACOs. 1,398 organizations were in the original database; after excluding solo practitioners and specialist physician organizations, 632 were left. 

Three groups were compared:

1) Medicare ACOs (21.1%) with exposure to some financial risk related to total health care utilization;

2) Non-ACOs (2.8%) with contracted financial risk for primary care costs (2.8%);

3) No ACO and no risk (76.1%).

Results?  PCPs in.....
Medicare ACOs got 49% of their income from a flat salary and 46% tied to productivity. 3.4% was tied to quality;
Non-ACOs at primary care risk got 66% of their compensation from salary, 32% tied to productivity and .8% from quality;

No ACO arrangements with no risk had compensation that was similar to the Medicare ACOs.

The PHB's take-aways?

Based on the non-ACOs, health care organizations are prepared to use salary to influence physician behavior.  If you believe PCP visits are a cost and you are at financial risk for utilization, apply more brakes than gas.  The model is still out there.

But......

The leaders running Medicare ACOs don't know what the right balance of FFS and capitation for PCPs, and are mirroring a status quo that is indistinguishable from business as usual.  Despite the fanfare about the critical role of primary care in health reform, the Medicare ACOs have decided otherwise. If they ultimately succeed or fail, it won't be because of any special innovation involving their PCPs' compensation.

Image from Wikipedia

Health Care Cost Insights and Capitation for the Patient Centered Medical Home (PCMH)

The Population Health Blog finally caught up with the Oct 22/29 "Price, Cost and Competition" issue of JAMA. 

One of the more interesting articles was a Viewpoint editorial on the Patient Centered Medical Home (PCMH). After tut-tuting fee-for-service payment as antithetical to meaningful payment reform, the author admits what the PHB has been saying all along: a global payment that covers all the medical, coordinating as well as non-physician services of the PCMH is tantamount to old fashioned "capitation." As we learned in the 1990s, capitation's unintended consequences are a) signing up too many patients, b) limiting access to primary care and c) over-referring to specialists.  To counter that, the editorial's author suggests the PCMH movement seeks "accountability." 

We'll see about that.

In the meantime, some other interesting articles:

Are "for-profit" hospitals evil?  Not necessarily.....

237 hospitals that converted from not-for-profit to for-profit anytime between 2003 and 2010 were compared to 631 hospitals that had not converted.  Converting hospitals improved their financial margins (practically all were in the red and subsequently became break-even) vs. the comparison group, and did so without increased utilization, restricting access to care, higher death rates or declines in quality for their Medicare patients. Their path to profitability may have been lined by renegotiated commercial insurance contracts, cutting costs or moving non-performing assets off the balance sheet.

Can physician groups become monopolistic? In a word, yes.

Commercial insurance preferred provider organization (PPO) charges for ten types of physician office visits in ten different specialties across 50 states were correlated with a measure of local market dominance dubbed the "Hirschman-Herfindahl Index" (more on that here).  As the HHI index increased, payments also increased, suggesting that as much as additional $3 to $12 in fees for the same services were the result of monopolistic contracting.

Monopolies aside, if docs are in charge vs. the hospitals, can they reduce health care costs?  Also yes.

This study compared average "per-patient expenditures" of physician-owned versus hospital-owned integrated medical groups and independent practice associations in California from 2009 to 2012. Among the 158 groups, 118 were owned by docs; their expenditures were over a thousand dollars less compared to hospital owned groups.  Larger physician groups had higher expenditures than the smaller ones.  More on that in a future post.

Does price transparency help patients chose to spend less?

Over 500,000 insurance plan enrollees had special on-line access to prices for medical services prior to using them.  There were over 250,000 households and of these, approximately 7500 accessed the information. Compared to households that didn't check the information, the price-shoppers seemed to choose cheaper labs (a few dollars per test) and imaging options (about a hundred dollars per test).  In looking at the data, the DMCB suspects some may have also deferred testing by choosing to use them less frequently or not at all.

Health Reform and Capitation 2.0

New recipe for capitation?

Readers of Kaiser Health News, Politico and The Hill (here, here and here, respectively) were treated to the faux news of another expert report on the tedious topic of physician payment reform.  While the Disease Management Care Blog is a big fan of the brainy Society of General Internal Medicine (SGIM), this physician compensation communique is another rehash of "misaligned incentives" leading to "quantity over quality."

Yawn.

The good news is that there may be insights that were missed by KHS, Politico and The Hill.  In this instance, the DMCB has been listening closely and found one thing the experts aren't saying.

What was said?

Like the many other decrees that have preceded it, the Report of the National Commission on Physician Payment Reform recommends the recalibration and then phasing-out of stand-alone fee-for service (FFS) while transitioning to other payment models that blend FFS with global payment, salaries or "capitation."  It also advocates increasing payment for "congnitive" over procedural services, removing any hospital overhead costs from the fees that are paid for any service that can also be performed at a free-standing facility, rewarding measurable quality, paying for telemedicine, increasing the use of risk adjustment, repealing the sustainable growth rate (SGR) and reforming the RUC.  And like everyone else, it assures the reader that paying for the savings from all these reforms will more than pay for themselves.

And yes, the word "capitation" was in the report.

What isn't being said is that there is a growing consensus that scuttling of traditional fee-for-service will usher in a new era of capitation.  The DMCB thinks of it as Capitation 2.0.

"Capitation" doesn't necessarily have a good name, but that doesn't mean this new rose doesn't smell as sweet or have fewer thorns. Originally spawned by the go-go managed care era of the 1990s, it was blamed for putting profits before patients by giving physicians an incentive to withhold needed medical services.  While a much younger Donald Berwick reported that the medical literature "did not make capitation out to be the villain that some believe it is," the complex risk taking, a lack of individual physician support and unseemly group practice behaviors undoubtedly fueled the physician backlash and the end of managed care in the 1990s.

 So why is capitation coming back?  The DMCB suspects one reason is that there are only passing references to it and that it's been rebranded with more benign sounding names like "gain-sharing" and "global payments."  Another is Medicare FFS fatigue, caused not only by the SGR but by CMS' unending hassles, the uncertainty surrounding PQRS and the dread of having to go through one of those repugnant "RAC audits."  Unwilling (so far) to simply drop out of Medicare altogether, docs are backing into acquiescing to the recommendations of groups like the SGIM.

And why does the DMCB call it Capitation 2.0? Writing in SGIM's Journal of General Internal Medicine more than a decade ago, Thomas Bodenheimer predicted the survival of managed care thanks to the allocation of full capitation to institutions, not individuals. It's then up to those institutions to leverage both FFS and capitation at the individual physician level.  The DMCB would add that a third ingredient is tying any payments under capitation to specific quality goals, like control of chronic illness or maintaining access to care.

The DMCB's conclusions?

What they didn't say: The track record of original capitation or advent of Capitation 2.0 doesn't mean physicians are embracing what their organizations and political allies are saying what's best for them.  They simply don't see an alternative. The 1990s could happen again.

What they got right, sort of: Outside of large organizations that take capitation, we have much to learn about the best combination of FFS and fixed payments when it comes to physician incentives and protecting patients.  Like other reports before it, the National Commission suggests we need 5 years to assess new payment models.  Given the decades of experience with managed care's capitation and Medicare's institutional inertia, that may be overly optimistic.

The Good and the Bad of Risk-Based Contracting: Large Integrated Groups Are Adapting Another Form of Managed Care with Limited Consumer Choice and Restricted Networks?

"Should I refer out of network?"

What is the secret health reform sauce of those famous large integrated medical groups?  Come to think of it, do they even have secret sauce?

To better understand the apparent success of household names like Dean, Geisinger, Group Health, and Mayo, Rob Mechanic and Darren Zinner surveyed and then interviewed the CEO or the Chief Medical Officer (CMO) of 21 famous large provider groups to understand their operational approach to risk based contracting.
 
That's important because emerging payment public and private insurer reform will include "bundled payments," upside risk-sharing and forms of capitation.  In these kinds of arrangements, the financial "risk" from high overhead, overutilization or excess costs will be the provider groups' problem, not the insurers'.

In other words, if ACO wannabes want to succeed when it comes to risk-based contracting, they may learn about the good and the bad of the large integrated group business model.

The authors discovered that about half of these groups had less than a third of their income coming from risk-based contracting (RBC).  In these ten groups, an average 88% of income was fee-for-service.

The other half (eleven) had more than a third of their income coming from risk based contracting.  In these groups, 71% of income was risk-based.

The authors then compared the approaches of the "low" risk and "high" risk groups.

While Disease Management Care Blog readers will be very familiar with elements making up the "good" secret sauce of risk-based contracting, they may be surprised at the reemergence of two bad downsides.

The good ingredients included 1) blunted physician financial incentives to "churn" patient visits, 2) a slight but significant increased emphasis on using quality measures to reward physicians and 3) a significant investment in data warehousing, analytics, patient registries and point-of-care patient-tracking.

In particular:

9 out of 10 low risk contracting groups based the "majority" of physician income on productivity. In contrast, five of the capitated groups paid 80% of their PCPs with a salary, while the other half paid 80% of income based on productivity

"Quality" measures drove a small percent of PCP income in both groups, though it was higher in the capitated groups (5% vs. 12%)

85% of all groups had invested in electronic health records; 100% of the capitated groups had invested in data warehouses with analytic software and two thirds had patient registries.  Only one of the FFS groups had those capabilities. While both types of groups had a low rate of "patient engagement" programs, the high risk groups were more likely to have care management programs in place. 

And the bad? 

The DMCB was surprised to read that the risk-based groups were far more likely to have mechanisms in place to limit their patients' out of network utilization (90 vs. 20%) and 2/3 vs. 1/3 had preferred relationships with "efficient" hospitals and providers.  In other words, these role-model and state-of-the-art organizations could be limiting patient choice and economically credentialing their provider groups.

Much depends on the details.  Insurers have probably not forgotten the abuses and resulting backlash that arose from unfettered capitation.  Good risk contracting typically includes quality and satisfaction metrics side by side with utilization targets and specifically prohibits windfall profits. Modern consumer protections at the state and federal oversight level are also far more rigorous.

That being said, the DMCB points out that it's no accident that this study shows risk-based contracting is associated with limits on choice and restricted networks.  We may not call it "managed care," but in many respects it is.

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?