The next step in payment reform

Much has been made of the recent report of the Massachusetts Special Commission on the Health Care Payment System. This is an interesting and thoughtful report and well worth reading in its entirety. The commission's main conclusion -- a move to a capitated (or "global") form of health care payments -- is based on the following principles:

1. As currently implemented, fee-for-service payment rewards service volume rather than outcomes and efficiency, and therefore other models should be considered.
2. Health care payments should cover the cost of efficiently provided care, support investments in system infrastructure, and ensure timely access to high quality, patient-centered care. Additional payment should reward and promote the delivery of coordinated, patient-centered, high quality health care that aligns with evidence-based guidelines where available, and produces superior outcomes and improved health status. Performance measurement should rely on reliable information and utilize uniform, nationally accepted quality measures.
3. Provider payment systems should balance payments for cognitive, preventive, behavioral, chronic and interventional care; support the development and maintenance of an adequate supply of primary care practitioners; and respond to the cross-subsidization occurring within provider organizations as a result of the current lack of balance in payment levels by service.
4. Differences in health care payments should reflect measurable differences in value (cost and quality). Payments should be adjusted for clinical risk and socio-economic status wherever technically possible, and should promote greater equity of payments across payers and providers, to the extent that this is financially feasible.
a. Differences in health care payments should be transparent, including across different payers.
b. Costs associated with desired investments in teaching and research should be paid outside of base payments, and should require provider accountability for how such payments are spent.
c. Costs associated with desired investment in special “stand by” capacity should be accounted for in the payment system.
5. The health care payment system should be structured in such a way as to minimize provider, payer and patient administrative costs that do not add value.
6. Payment reform must consider how:
a. Some payment methods may require certain organization of the service delivery system, and
b. Health benefit designs either support or limit payment reform.
7. Health care per capita costs and cost growth should be reduced, and providers, payers, private and public purchasers and patients should all share in the savings arising from payment reform.
8. The health care payment system should be transparent so that patients, providers and purchasers understand how providers are paid, and what incentives the payment system creates for providers.
9. It will be necessary to consider the diversity of populations, geography and providers across the Commonwealth when designing payment reform to ensure high quality, patient-centered care to all populations and geographic regions in the Commonwealth.
10. Implementation should be phased over time with:
a. Clear and attainable deadlines;
b. Planned evaluation for intended and unintended consequences; and
c. Mid-course corrections.

It seems to me that a logical conclusion that follows from these principles and recommendations is that the capitated rates to be collected by the providers should be set by state regulation rather than by the current negotiations and market forces at play in the state. Why? Well, there are simply no reasons beyond the factors mentioned above to account for any difference in the per-person-per-month charge collected by different providers.

Today, rates that are established by negotiation between insurers and providers are mainly based on the relative market power of the two organizations. Note that this factor is totally absent from the principles set forth above. If it were allowed to come into play in a capitated world, what would happen?

Well, for example, we know that the doctors and hospitals in the Partners Healthcare System currently get fee-for-service payments about 30% greater than other providers. If a capitated rate were established for PHS providers today based on this differential, it would perpetually reward this health care system for its market dominance, to the detriment of the other public policy imperatives mentioned above. The differential would cement Partners' standing as the dominant provider group in the state, enabling it to recruit doctors and absorb hospitals by offering its new captives a higher rate than they could previously receive.

So, it seems to me that the job of the state in this new order is to establish risk-adjusted annual health budgets for the different risk categories of the public; to weight them by geographic cost-of-living factors; and to apply the appropriate adders for medical education and the other factors mentioned above. This would then become the rate schedule to be used by every insurer with every primary care doctor in the state, regardless of what provider network that doctor was affiliated with.

Perhaps an insurer could be permitted to offer different rate incentives or disincentives from other insurers for differences in measurable quality outcomes, but these, too, would have to be uniform across all providers for each insurance company.

The Commission may or may not have considered this option in their planning, but it should certainly be front and center when the Legislature considers the next step.