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Fixing U.S. health-cost crisis: Bundled payments vs. capitation


In the Harvard Business Review, Michael E. Porter and Robert S. Kaplan argue for bundled payments, writing that it generates the kind of competition among providers that improves the value of healthcare. But in the accompanying piece, Brent C. James, M.D., and Gregory P. Poulsen push for capitated payments, which  they call the only approach  that would encourage healthcare providers to attack all types of waste.

(We at Cambridge Management Group think that the bundled-payments approach works best.)

Professors Porter and Kaplan conclude :

“The time has come to change the way we pay for healthcare, in the United States and around the world. Capitation is not the solution. It entrenches large existing systems, eliminates patient choice, promotes more consolidation, limits competition, and perpetuates the lack of provider accountability for outcomes. It will fail again to drive true innovation in healthcare delivery.”

And, “Much remains to be done to put bundled payments into widespread practice, but the barriers are rapidly being overcome. Bundled payments are the only true value-based payment model for healthcare. The time is now.”

But Dr. James and Mr, Poulsen argue:

The solution to America’s healthcare cost “quandary is to change the way businesses, government, and other purchasers pay for healthcare to population-based payment. Under this approach, providers receive a fixed per person (or ‘capitated’) payment that covers all healthcare services over a defined time period, adjusted for each patient’s expected needs, and are also held accountable for high-quality outcomes. It’s the only payment system that fully aligns providers’ financial incentives with the goal of eliminating all major categories of waste. It fundamentally shifts the role of managing the amount, form, and cost of care from insurers to medical practitioners. It also ensures that providers receive enough of the savings that they can afford to fund the changes needed to bring down costs.”

To read both articles, please hit this link.

A plug for managed care


Jeffrey Gene Kaplan, M.D., argues here that managed care is the best way to reform healthcare.

Among his remarks:

“Incentive alignment is critical. Capitation does not cut it simply because under it, the incentives are to do less. Also, capitation frustrates because a lot goes on that the provider cannot control. And, we all know the problems of fee for service, private practice, etc. It fractionalizes care and leads to unnecessary services and over-utilization.  Separate primary from preventive care; reorganize care around patient medical or surgical conditions, forming what they call ‘Integrated Practice Units’ (essentially team work).” 

He touts a 2013 by Porter and Lee that recommends:

1.    Separating primary from preventive care and reorganizing care around patient medical or surgical conditions, forming what they call “Integrated Practice Units” (essentially team work).

2.    “Measuring to manage the outcomes from the patient’s perspective and costs of the longitudinal view, the ‘cycle’ of care of every patient.”

3.    Converting from fee-for-service or prospective payments to bundled payments for episodes of care. 

4.    Ensuring that healthcare-delivery systems be made collaborative.

5.    Considering all care, not just local care.

6.     Using information technology to integrate disparate elements of care and understand what happens to “whom,” “where” and “when,” and what works or does not, and communicate to improve efficiency and effectiveness.

Providers seek new reimbursement tools


KPMG suggests that only 15 percent of healthcare providers’ finance departments have the “very sophisticated” capabilities needed to support capitation, bundled payments and quality-based payments that account for an ever-larger part of revenue, 

The findings also showed, reports Becker’s Hospital Review, that:

“1. Sixty-one percent of respondents said their finance departments are gathering tools and conducting analysis about getting their finance function ready for new payment models.”

“2. Thirteen percent of respondents described their finance function as ‘undeveloped’ for managing risk and accounting for these new payment mechanisms.”

“3. Many healthcare providers are well aware of the challenges of adapting to value-based payments…..”

“4. When asked how CMS’s objectives of linking 90 percent of reimbursements to value or quality-based measures by fiscal year 2018 influenced their organization the most, only 26 percent of those surveyed said their strategic approach to migrating and preparing for value-based payments has not changed.”

“5. Twenty percent  percent of survey respondents said they are measuring risk and accounting for it in their fees and another 23 percent are using data and analytics to measure and improve efficiency and quality. Other respondents said they are revamping finance/accounting functions or updating their contracts.”

“6. {P}redictive modeling (30 percent) and analytic tools (27 percent) were where organizations needed the most help, surpassing organizational culture, measuring clinical variability, showing the connection between quality and incentives and improving reporting transparency to stakeholders.”


Experts applaud ‘Next Generation’ ACO’s



Experts applauded the Centers for Medicare & Medicaid Services’ “Next Generation” Accountable Care Organization (ACO) plan, which asks participants to take on more financial risk in return for more  potential reward. The aim is to move away from fee for service to capitation as payers push healthcare industry toward a value-based reimbursement system.

“It’s a real effort to move away from shared savings or limited risk models. On both counts it’s an important step,” said Mark McClellan, M.D., a former CMS administrator,  told FierceHealthcare.

Larry Kocot,  a visiting fellow in the economic-studies program at the Brookings Institution, agreed. “I do think CMS should be credited for thinking creatively to extend the model to meet the needs of providers no matter what stage they are at within the ACO program,” he told the news service.

Farzad Mostashari, M.D., former national coordinator for health- information technology, told Clinical Psychiatry News Digital Network that the new model will likely suggest how CMS will structure other ACO’s.  “This is directionally, absolutely where the Medicare Shared Savings Program (MSSP) is headed.”

“We are hopeful the changes they proposed and the comments received that they will make the MSSP program more accessible and more friendly to a number of providers,” said Kocot, who also served as a senior administrator of CMS.

FierceHealthcare reported that Kocot said he’d like the CMS to establish a ”fourth track that would lead to full capitation. He recommends tracks that reflect a continuum of ACOs that may begin with little risk and end with the full capitation model.”

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