Capitation: An Inevitability Waiting to Happen

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Regardless of the effects of health-care reform, the United States cannot continue on the current health-care track, given deep, multiyear federal budget deficits. It is simply not sustainable, at a cost of more than 16% of the gross domestic product (GDP)¹; in comparison, socialized medicine in the United Kingdom claims a mere 8% of its GDP. To make matters worse, the percentage of baby boomers retiring is at an all-time high. They have worked hard and have high expectations for prolonged longevity. The combination of all these factors means that health care is going to be an expensive undertaking, all around. Furthermore, our current health-insurance system does not promote prevention and wellness, but is, rather, a limited safety net unfurled once people get sick. Given the high number of uninsured patients, health systems have had to transfer the cost of indigent care, through rate increases, to managed-care providers. This, in turn, has made insurance extremely costly to the consumer. Unlike car-insurance rates, health-insurance premiums do not fluctuate based on use. Our current health-care payment systems are predicated on paying providers for patient encounters. Specifically in outpatient imaging, this concept has favored proliferation in the deployment of imaging technology, along with the dramatic rise in its use. Factors that further exacerbate this use include frivolous malpractice suits, physicians who have private imaging investments, and patients who fail to manage their disorders until their conditions become critical. The current payment system also holds little regard for medical outcomes; while some barriers (such as radiology benefit management) have been implemented, little has been done to curb the growth of medically unnecessary exams. The DRA has shown that by reducing reimbursement by an average of 20%, demand can be reduced. Recent results2 show that between 2007 and 2009, the rate of growth for MRI, CT, and PET/CT declined to 1.1 % annually, whereas historically, growth was in the 10% range A 10-Year Track Current thinking is that for long-term viability, we are on a track toward a capitated health-care system. This is expected to evolve over the next 10 years and might accelerate if we are unable to contain costs in the short term. In talking to health-care leaders and research organizations, I’ve found that the sequence of events regarding capitation is generally perceived to be: • first, reduced reimbursement and pay for performance; • second, bundling of events; • third, a shared-savings model or accountable-care organizations (ACOs); and • fourth, capitation. A lot is still to be worked out, but government will start by looking at areas of rapid growth in health care. Outpatient imaging is right in the crosshairs, and it is likely that the 2010 Medicare Physician Fee Schedule will lead to further reductions to Medicare outpatient-imaging reimbursement of 40% over the next four years. The reduction is predicated on increasing the equipment-utilization factor from 50% to around 90%. This will be devastating to both freestanding imaging centers and physician providers. Many of these reimbursement reductions will also be reflected in managed-care reimbursement for the same providers, assuming that commercial contracts are linked to Medicare rates. This will quickly accelerate the consolidation of freestanding imaging centers. On the hospital front, the forecast is that we will begin to see the bundling of events into a type of episodic payment linked to outcomes. An anterior cruciate ligament repair, for example, might include a physician’s fee, imaging scans, preoperative laboratory tests, surgery, and postoperative physical therapy (among other services) under one payment. Providers will be required to distribute the payment among the various services and to carry an outcomes guarantee. Should the procedure fail, the cost of a return to surgery would be borne by the provider. This solution, while potentially more affordable for the payor, does not address the growing volume of procedures. ACOs are considered the next step in evolution because they address an issue neglected in current health-care reform: wellness. ACOs are going to be required to manage the populations that they cover. The theory is that by managing patients on a regular basis, costly events such as heart attacks can be avoided. Smoking cessation, weight monitoring, and early use of statins in cholesterol maintenance could have big effects on the overall health of a population. Technology will allow for remote monitoring, and this could significantly reduce costs. Remote monitoring is not currently paid for by most insurers, but under an ACO model, the provider could elect to use technology to reduce costs and increase the monitoring of covered lives. Cost will be the factor that determines when capitation is instituted, but the consensus is that it will be part of the ultimate phase of change, to assist in covering lives at an affordable rate. If we are to avoid the capitation debacle experienced in Massachusetts, significant planning and negotiation will be prerequisites. Providers are going to have to shift from increasing volumes and being paid on a per-click basis to managing a population, on a predetermined amount of money, through true disease management. Physicians will have to decide between private practice and employment, given the phasing out of ancillary revenue streams. Medical-equipment manufacturers will have to use technological advances as ways to reduce costs and prevent expensive inpatient surgeries. Hospital systems are going to have to place a tremendous focus on quality, safety, and performance measurement to ensure that costs are contained and that secondary infections are eliminated. James Polfreman is CEO, retail healthcare business, Memorial Hermann Healthcare System, Houston, Texas.