Moving Beyond Fee For Service (Part Three of Three)

In the previous two posts, I reviewed perverse incentives of fee for service payment in health care, and discussed some of the key elements to make a transition from fee for service operationally an politically feasible.   In this post, I will examine four efforts to provide a platform to pay something other than straight fee for service for health care.


  1. BCBSMA Alternative Quality Contract

In 2007, Blue Cross Blue Shield of Massachusetts announced its “alternative quality contract.”  The contract requires groups of physicians (and generally their affiliated hospital) to accept a “standard global budget” (a.k.a. capitation), and accept a limit to the inflation rate of this budget. In return, providers are able to earn as much as a 10% bonus for achieving certain quality standards – which would be set for five year periods (and the level of performance required to gain reimbursement would be fixed for the entire five years.)  


BCBSMA initially had difficulty recruiting provider organizations for this program, although they have successfully recruited more groups to this contract over the last few months.    Here is a link to a presentation from BCBS. 



PROMETHEUS  has designed evidence informed case rates for a limited number of types of episodes. Providers would agree to accept as payment in full an amount that would support all evidence-based care.  This would be calculated in part by determining the level of potentially avoidable complications – and funding improved reimbursement, increased evidence-based care, and savings for employers out of these avoided complications


Pilots began last month, and will pay fee for service up front, with a reconciliation at the end of each year where providers would gain upside, but would not take “risk” on downside.  An advantage of paying for episodes is that this does not discourage providers from caring for those with serious illnesses.  However, the payment system is not “simple,” and it won’t be easy to extend this to a substantial portion of a practice.  A substantial amount of medical care, especially complex care of patients with multiple comorbidities,  will not fit easily into this model.

PROMETHEUS gained substantial funding from the Robert Wood Johnson Foundation, and has found a number of employers and health plans very interested in piloting this payment method.   (Disclosure: I served on the PROMETHEUS design team)

  3. Patient Centered Medical Home

Patient Centered Medical Home  would pay providers a fixed fee in exchange for providing increased patient coordination, in addition to paying fee for service for all medical care delivered.  There is huge interest from the provider and the employer community for this concept, and a few pilots suggested cost savings that could justify incremental payments.    There is also concern that this model might exacerbate the shortage of primary care physicians, and that larger implementations will fail not replicate the savings demonstrated in the small pilots.


Patient Centered Medical Home blends fee for service and capitation, and might help physicians think of their panel as a population, rather than feeling responsible for patients only when they have an appointment scheduled.


  4. Multispecialty Group Practice

Historically, many multispecialty group practices have the breadth of practice which makes accepting a capitation easy.   Some were founded as the delivery portion of staff-model health maintenance organizations, and others have tight ongoing relationships with one (or more) health plans.   Most are affiliated with hospitals.


Interestingly, Medicare Advantage plans are a major source of capitation for many multispecialty groups, and Medicare Advantage plans are under major pressure from Congress because of studies suggesting that Centers for Medicare and Medicaid Services (CMS) is overpaying by 10% or more.  There is some evidence that multispecialty groups offer better outcomes than a traditional medical community with independent physicians in small practices. Many community health centers are similar to multispecialty groups, and many also are well-equipped to accept bundled payments.   “Free care” patients are actually the extreme of capitation – with a payment rate of zero.


Health care reform is more likely to succeed if it includes payment reform, and diminishes the prominence of fee for service incentives.  But the current system works well for many of its participants, so this transition won’t be easy.