Fee-for-Service Still Dominates in United States

Tara Haelle

March 08, 2016

Nearly 95% of all provider visits used fee-for-service payment methods in 2013, an increase of more than a percentage point since 2010, according to a study published March 7 in Health Affairs.

The remaining sliver of payments were paid under capitation, "in which a physician or other provider receives a fixed monthly payment per patient, regardless of the services provided," report Samuel H. Zuvekas, PhD, and Joel W. Cohen, PhD, both from the Center for Financing, Access and Cost Trends at the Agency for Healthcare Research and Quality, Rockville, Maryland.

"As health economist Paul Ginsburg wrote in 2012, many policy makers equate payment reform with eliminating fee-for-service payment," Dr Zuvekas and Dr Cohen write.

"New models that attempt to shift the focus of payment from quantity to quality may be more successful than traditional capitation."

However, an announcement last week from the US Department of Health and Human Services (HHS) suggests that change in payment models could be speeding up since 2013, as Medicare reimbursements move away from fee-from-service toward accountable care organizations.

Dr Zuvekas and Dr Cohen analyzed data on the prevalence of capitation from 1996 through 2013, using the agency's annual Medical Expenditure Panel Surveys of physician offices. These telephone-based surveys of payment methods for visits, however, will not capture circumstances in which physicians receive a capitation payment for patients who did not see them during the period included. The patient visit samples included in the data set ranged from a low of 22,794 visits in 1998 to a high of 61,901 visits in 2004.

Capitation payment methods dropped from 6.6% of patient visits in 2007 to 5.3% in 2013, establishing the remaining 94.7% of visits as fee-for-service payments. Even among health maintenance organizations, 17.9% of private health maintenance organizations and 8.4% of Medicaid health maintenance organizations used capitation, whereas the majority reimburse physicians on a fee-for-service basis.

Medicare beneficiaries aged 65 years and older were half as likely to see physicians under capitation arrangements in 1996 as privately insured individuals younger than 65 years, whereas "[c]apitation of visits among Medicaid enrollees fluctuated widely during the late 1990s" before declining alongside declines in the other two groups, the authors report.

The state with the highest rates of capitation arrangements was California, where just more than a quarter (25.7%) of physician visits used capitation as their payment method, but 3.2% of visits used capitation throughout the rest of the United States in 2013.

Despite the Affordable Care Act's intent to employ innovative payment mechanisms for more efficiently delivered care, the attempt to move away from fee-for-service arrangements has been unsuccessful.

"Previous efforts at payment system reform focused on pure capitation, which involved shifting all or most of the risk of caring for patients to providers," Dr Zuvekas and Dr Cohen write. Yet, "financial losses associated with pure capitation in many physician groups led providers to reject 100 percent risk sharing as a payment method."

The authors suggest that a potentially more successful approach than traditional capitation may be employing new models that base payments on quality instead of quantity.

“For example, the Medicare Pioneer [accountable care organization] demonstrations are designed to test a shared-savings payment policy for organizations that are willing to accept some of the financial risk for providing care,” Dr Zuvekas and Dr Cohen write.

Indeed, recent news from HHS shows the goal of tying 30% of Medicare payments to quality is ahead of schedule since the Obama Administration’s January 2015 announcement of new goals and a timeline for shifting Medicaid reimbursements methods.

“With the January 2016 announcement of 121 new [accountable care organizations,] as well as greater provider participation in other models, HHS today estimates that it has achieved that goal well ahead of schedule,” the HHS reports.

The authors suggest that providers’ willingness to use new payment methods will largely depend on how much risk they must assume to do so.

"To be successful, payment reform must confront the reality that individual physicians and practices are unwilling to accept all of the risk for providing care," the researchers write. "Finding the right balance in risk sharing — or the 'sweet spot,' as Austin Frakt and Rick Mayes term it — so that providers are willing to participate on a widespread basis while providing meaningful incentives to deliver efficient care is important to the success of any new approach."

The authors have disclosed no relevant financial relationships.

Health Aff. 2016;35:411-414. Abstract

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