Payment Reform: Off the Rails in Massachusetts

Massachusetts not only led the nation in passing and implementing legislation to dramatically decrease the number of uninsured, but it also planned to lead the nation in reforming provider payment to be sure that we could afford near-universal coverage.

Health care reform in Massachusetts remains popular, but the wheels are coming off of the payment reform bus.

A state commission recommended a multi-year transition from predominately fee for service to a series of bundled payments to encourage better coordination and to discourage providers from “running the meter” and recommending diagnostic and therapeutic care which would enrich providers without real value to patients. 

The Boston Globe reported Saturday   that state Senate President Terese Murray has, for the moment, given up on enacting legislation to reform payment in Massachusetts.  She said ““It’s like going around in circles…Nobody is in agreement on anything.’’

It’s no surprise.  The goal of payment reform is to lower overall costs, and that means that some stakeholders will earn less.  Since all of us are intensely loss averse, the losers will fight much harder against reform than the winners will fight for reform.

Here is my summary of barriers to payment reform, and some steps to help overcome these barriers.   Under the best of circumstances, it’s hard to reform payment methods.  It’s probably even harder when money has to come out of the system.

Potential Enablers

Many providers are doing quite well under fee for service, and perceive the threat that payment reform will lower their earnings.

As long as providers feel that fee for service will yield continued increases (in both fee per unit and allowed utilization), they will insist on continued fee for service.   We won’t see health care payment reform until providers feel a meaningful threat that there will not be future fee for service increases.

The payment system is fragmented, and employers demand that every health plan include (almost) every provider.   This gives health plans little leverage to change the payment methodology.

For most adult practitioners, Medicare is a huge source of revenue.  The commercial payers cannot legally collude around payment, so any health care reform will depend up on a Medicare waiver allowing CMS to pay other than fee for service for Medicare services. Limited networks could facilitate introduction of bundled payments.

Providers are fragmented, and few are arranged in such a way to take “risk” or capitation for their entire population.

As long as fragmented fee for service payment is available, many physicians who deeply value their autonomy will continue to practice in nonintegrated practices.  We'll need transitional approaches for those physicians who are not currently in integrated groups. We also should continue to pay fee for service for some specialty services. 

Providers remember that the capitation of the 1990s included inadequate risk adjustment.

Risk adjustment software is far better than 10 years ago 

We demand choice, and bundled payment is far easier to arrange if patients are locked in to a delivery system

We need bundled payments that have corridors to avoid excess loses or windfalls, and we must include contingencies for when patients choose to split their care among different systems. 

Most large companies self-insure, and it’s difficult to administer payments other than fee for service for these plans which  are governed by ERISA

Health plans must show their clients that paying fee for service, even with discounts, is more costly than paying for bundles of care. 

Capitation or global budgets lead to an incentive to undertreat

Payment reform must include quality scores and report cards, and payment must be decreased if all appropriate evidence-based care has not been delivered.

Capitation or global budgets lead to an incentive to reject the sickest patients

Risk adjustment should help – although we’ll have to rely on physicians’ professionalism too.  That’s imperfect, since we know professionalism has not prevented overtreatment in the fee for service system.

These aren’t all the challenges, and there’s no guarantee that these steps will overcome enough of the objections to payment reform in the provider community.  From my discussions with colleagues over the past few weeks, I’m convinced that many physicians and hospitals accept that we will need to reform payment to be able to afford to cover our population.

But it will take a real sense of crisis to move forward, and a real threat that rejecting health care payment reform will lead to unacceptable fee for service payment cuts.