Taking a Closer Look at Capitation for Value-Based Care

By | February 10, 2021

As we focus on delivering value-based care; higher quality at a more affordable price, the conversation concerning payment models rapidly pivots to global capitation for a population of lives. The opposite payment model is a fee-for-service model, and currently, there is a belief that service-based fees lead to an over-utilization of services. Consequently, many believe the only possible solution is capitation; payment based on the total cost of care and not per unit of service.

Unfortunately, this discussion centers on the premise that it is an either/or. However, rarely do solutions to complex questions result in such a binary model. If we step back and analyze the unintended consequences of both models, we realize that other payment methodologies exist.

At the root of the United States’ healthcare financial situation is the unit price of services delivered. Compared to the rest of the world, we provide a product at a more expensive price point. However, when one merely lowers a price point without controlling utilization, the overall cost does not necessarily improve as the number of units increases, even at a lower cost per unit. These higher unit costs stem from multiple factors including, waste in the system (which fuels the economy), expensive technologies that haven’t improved productivity, and even student debt.

In the United States, we do not solve this algebraic equation with the answer in mind, meaning we do not start with an expenditure number or the number we are willing to spend. And although this appears simple on the surface, in healthcare, it’s difficult to predict and ascertain both the future services that will be necessary and the population’s health in a specific timeframe.  However, if a limited pool of dollars constrains our ability, this forces us to become creative to deliver all needed services.

Once again, this brings us back to the cost of a unit of service, whether it be the cost of a test or a payment for an office visit.  And derivation of these prices does not occur from the value they might bring. Instead, they are set by what the market will bear, and if the market has no cap, elevation in spending will always continue. Yet, we do have the ability to set fee schedules based on value. The initial intent of the relative value unit model was to do just this. Unfortunately, we have not taken a technical or a scientific approach based on the complexity of care needed, the intensity of the effort, and possible outcomes. Therefore, we are left deciding things like whether cognitive thinking for a complex patient with multiple medical problems is worth more or less than a routine knee replacement?

Moreover, if we have the ability to pay in a fee-for-service model, we need to focus on a service definition that is more value-based. Pivoting this way will lead towards a fee for value payment that is calculated based on variables that are predetermined against the total expense that we believe is appropriate and within the context of our ability to afford healthcare versus other items. This is no easy task, but our goal must remain steadfast in creating sustainable models of affordability. If this occurs, we know the consumer has won, though there are still losers within the healthcare ecosystem. These will no doubt be difficult conversations and require incremental changes; however, our goals must always center on delivering a more affordable, higher quality product.