At-risk Payments to Physicians

In the early glory days of managed care, the late 1980s and early 1990s, when it still had a bit of a positive halo and helped create the only couple of years in decades when per capita health spending was less than inflation or GDP growth, one of the innovations that drove spending control was capitation–paying a physician a fixed amount each month to care for a member.  The payment might include only the outpatient services provided by the primary care physician or it might include all outpatient physician services or even hospital and other health services.  New proposals regarding global or bundled payments, whether to an individual or group of physicians or to an accountable care organization, are basically capitation.  A Health Affairs article reviews the history of capitation and what it might tell us about issues for new forms of at-risk provider payments.   (Health Affairs Article)

As the article points out, the heyday of capitation was short-lived, as many providers struggled under it and both patients and physicians expressed concerns about whether it might lead to skimping on care.  The overall percent of office visits covered by capitation, as revealed by survey data, declined from about 15% in 1996 to 7% in 2007.  Even in HMOs, capitation covers only about 20% of visits, down from almost 35%.  Its use is greatest where HMO penetration is high and in the western US.  In California, for example, 29% of visits are still under capitation.  In addition to the quality of care and level of reimbursement concerns, capitation was also abandoned because of its administrative complexity.  Where it tends to still be used, physician groups have sufficient market power to demand high capitation payments and tend to have the size and sophistication to manage it successfully.

The new proposals for placing providers at risk will face similar issues of ensuring appropriate care delivery.  So much concern today relates to excessive utilization which is believed to be driving up costs, but there is a lot of under-utilization as well.  Quality of care and care process measurement systems have come a long way since the 1980s and may help ameliorate this concern.  In actuality, however, much of the nation’s cost problem, as compared to other countries, relates to unit costs, not utilization.  At-risk payments don’t by themselves solve this.  If providers have market power, and they do, they will demand high global payments just as easily as they do high per service payments.  So don’t expect these new forms of at-risk payment to change health spending trends.