Primary Care After COVID-19: Is It Time for Capitation?

The COVID-19 pandemic caused large reductions in in-person office visits, costing primary care practices billions and exposing many of the risks associated with the fee-for-service (FFS) payment system. Capitation arrangements, in which providers are paid a per-member per-month payment, may offer a more attractive, less risky arrangement in the post-COVID-19 world.

Almost all U.S. health care services are paid through the FFS system

In the past decade, the United States health care system has attempted to transform the way providers are paid. Rather than traditional FFS payments, many payers for healthcare services are increasingly paying hospitals and physicians through alternative payment arrangements, including capitation. Medicare, the country’s largest payer, set ambitious goals of making 50% of payments to physicians and hospitals through alternative payment models by 2018 and has piloted 20 such models since 2010.  Despite these efforts, the FFS system remains the primary payment model throughout most of the country.

According to the American Medical Association [pdf], although 59% of physicians were in practices that received payment from at least one alternative payment model (pay-for-performance, capitation, bundled payments, or shared savings), an average of 71% of practice revenue was still received through FFS in 2016. Also, the Health Care Payment Learning & Action Network found that only 36% of total US health care payments were tied to alternative payment models in 2018, although that represents an increase from 23% of payments in 2015. Even among this 36%, 31% are tied to shared savings/losses models built on FFS systems. Only 5% are tied to population-based payments or capitation. Why the resistance?

Barriers to alternative payments

FFS has been the dominant payment strategy in the US healthcare system for decades. Paying for each service incentivizes the provision of services.  This can help ensure access to care. However, this ease of access often leads to over-utilization of in-person services and unnecessary tests and procedures. Also, FFS leads to care that is siloed and an “assembly line” that cycles through patients as fast as possible. Despite these well-documented drawbacks, FFS has almost immovable inertia. Three main factors contribute to this inertia: systems, experience, and perceived risk.

1. Under FFS, an entire infrastructure facilitating the submission and processing of claims has developed across the US. This infrastructure includes both the information technology (IT) systems and legions of administrative staff.
2. Providers have trained and worked under FFS for their entire careers, ingraining ways of practice. For example, practices have constructed their offices with clusters of rooms that allow physicians to drop in for quick conversations with already waiting patients.
3. FFS is perceived as low-risk. A provider’s revenue is based solely on the provider’s ability to meet with patients. The more patients a provider recruits and the more visits they schedule, the more money they make.

COVID-19 exposed risks of the FFS system

Can COVID-19 help chip away this FFS inertia? Our health care system has compressed decades of telemedicine progress into mere months and may change in other dramatic ways. Can we also make unprecedented leaps toward alternative payment?

For one, providers’ experience in the past few months may have shattered their perception that FFS is low-risk. Providers saw their revenues plummet because of their inability to bring patients into their clinic and/or hospital. Office-visits dropped roughly 60% immediately after stay-at-home orders were issued around the United States. The situation may be especially dire in rural areas. Since then, visits have rebounded slightly, but visit counts still remain far below their historical average. This reduction in visits will cost primary care practices an estimated $15.1 billion.

FFS was once considered the least risky payment arrangement for providers. However, post COVID-19, FFS may be considered riskier than a capitated arrangement in which providers are paid on a per-patient per-month (PMPM) basis to manage their patient population's health. The PMPM payment is paid regardless of the volume of services clinicians provide in their clinic or hospital. Instead, these funds are flexible and allow providers to deliver care wherever and by whoever is best suited. For example, some services such as X-rays require trips to the physician's office. Others, such as behavioral health check-ups, can be provided by a clinical social worker through a videoconference. During a crisis like COVID-19, these capitated funds could cover providers as they shift some care to telehealth and triage more acute needs.

Medicare’s role in transitioning away from the FFS system

But what about the other barriers to adopting alternative payments? Here’s where Medicare can play a key role.

For almost four years, Medicare has implemented the Comprehensive Primary Care Plus (CPC+) initiative. It is the nation’s largest-ever initiative to transform primary care. While Medicare is the lead payer, CPC+ also brings together 52 payer partners in 18 regions [pdf]. This model takes a tentative step toward capitation by allowing practices to choose partial capitation for office-visit evaluation and management services. More importantly, CPC+ helps practices shed traditional ways of practice under FFS and implement new systems for success under alternative payments. As examples [pdf]:

• CPC+ provided substantial funding for care management, which practices used to hire care managers;
• CPC+ set up learning activities for practices to learn from payers and from each other; and
• health IT vendors helped practices transition their electronic health record systems to better handle population health.

Medicare is pushing further toward capitation with the introduction of Primary Care First (PCF) and Direct Contracting (DC) models. PCF is designed for practices with some experience with alternative payment models. It requires partial capitation for all practices in the model and expands the scope of services covered. DC allows providers to choose from partial capitation for primary care services up to full capitation for all services (but with some risk mitigation measures).

These Medicare capitated models make concrete efforts to address two key limitations of capitation: 1) beneficiary risk and 2) performance. First, each model incorporates risk adjustment to ensure that the payments made to each practice accurately reflect the acuity of their patients. Risk adjustment also helps avoid overpaying if practices deny sick patients care. Second, each model requires meeting performance benchmarks to achieve full payment. This avoids any shirking of necessary services.

Is it time for capitation?

We hope that this public health crisis will be once in a lifetime. However, even so, its impact on the health care system will likely be so severe it will imprint in health workers' memories for their entire lives. Thus, health care systems may be willing to make broad changes to avoid such trauma in the future. We will see if this experience with COVID-19 and prior efforts to transform primary care will propel providers to seize new opportunities for capitation, such as those provided by Medicare. This may signal to other payers and providers to adopt alternative payment models and move away from FFS. This moment may prove to be an inflection point in how we pay for health care in America.