Capitation asks physicians to roll the dice for reimbursement

Now that the Democrats have assumed a numerical majority in Congress, health care is back on the table in Washington. Many ideas are being discussed, and legislation has been written and introduced already. But as Democrats and Republicans seek new ideas to save Medicare and improve the health of all Americans, it is hoped that they will refrain from dumpster diving after hackneyed, discredited ideas proven to be unworkable in the past. Like capitation.

It was particularly troublesome to hear the word capitation used in the context of finding a fix for the sustainable growth rate (SGR) formula. The much-maligned SGR is the mechanism by which the government recoups health care expenditures that go beyond the given target for a year. It does not work because Congress bails physicians out every year with an 11th hour fix. Surely, were our Congressional representatives held to the same standard, most—if not all—of their salaries would be forfeited and applied to the federal deficit.

At the behest of Congress, the Medicare Payment Advisory Commission (MedPAC) was asked to file a report containing some recommendations on finding an alternative to the SGR. MedPAC has reportedly come up with two alternatives: Pathway One and Pathway Two. If everyone can agree that the SGR should be repealed—and there is disagreement within MedPAC—Pathway One would entail developing some alternative method that would extract greater value from the Medicare spend. If it is determined that the SGR will stand, then Pathway Two would set spending targets for all providers, not just physicians, with built-in incentives to keep costs down.

At least one MedPAC commissioner believes capitation is the way to exact greater value from the system. According to an article by John Reichard in the January 9 Congressional Quarterly, Commissioner Nancy M. Kane believes that capitated payment needs to be a central feature of the new system. "At the federal level, we should be thinking about how we can get back to a capitated environment," she said.

In some parts of the country, capitation never disappeared, and one need only look at markets with a high level of managed care—for instance, California, where radiologist and entrepreneur Howard Berger, MD, has operated RadNet since 1981; he has developed his own home-grown utilization management program in order to manage the risk that payors have asked him to assume. Central to his vision for the 130-site imaging center empire he is building is the need to consolidate in order to have leverage with payors. If capitation is implemented by the Centers for Medicare and Medicaid Services, Berger may prove to be prescient. Look for a profile of RadNet in the March 2007 issue of Imaging Economics.

It is understandable that policy makers would look to managed care for solutions to the runaway cost of the Medicare program. And it is commendable that MedPAC is pushing forward with solutions to this most pressing problem, for which any solution is likely to contain pain for all stakeholders. But is capitation really a viable answer, applying actuarial techniques to the problem of funding physician reimbursement in our Medicare program? Risk management has its place in the decision-making process of any business, and there are many applications for risk management in health care operations. But everyone knows that the actuarial tables are always stacked in favor of the house. Capitation asks physicians to roll the dice for reimbursement. Any system that incentivizes providers to withhold care is a dangerous proposition and likely to widen the quality chasm in America. What we need are fresh ideas that will maximize our investment, minimize waste, and continue to improve quality and access to appropriate care.

Cheryl Proval
Editorial Director