The Executive Suite: Population-based payments to replace fee-for-service

Thursday, October 29, 2020

Population-based payments to replace fee-for-service

The rapid decline of in-person visitation in early 2020 due to the COVID-19 pandemic revealed the unstable reality of fee-for-service payments, which should be replaced by population-based payments, authors of an article recently published in JAMA suggest.

Suhas Gondi, BA, and Dave A. Chokshi, MD, MSc, suggest that financial clearance should be a new goal for payment reform. Though CMS designed and implemented various value-based are programs through alternative payment models to simultaneously improve the quality of care and reduce costs, the authors say these efforts have only had modest effects on health outcomes and spending.

Furthermore, the authors write that the pandemic’s effect on in-person visitation reveals that fee-for-service payments are “exceptionally vulnerable to shocks that reduce demand for in-person care.”

On the contrary, the authors suggest that population-based payments are more resilient in the face of shocks like COVID-19 and will protect access to care when it is most needed.

To achieve healthcare population-based payment stability, the authors suggest looking to fully capitated payments.

In a paper published in 2016 in Pediatrics, Steven A. Farmer et. al. calculated the hypothetical break-even point for a pediatric practice and provide sample income statement calculations. Overall, though written with a pediatric practice in mind, capitation income can be calculated by:

Net Income = Patient Co-payments + Capitation Base Rate + Utilization Incentives + Quality − Operating Expenses.

The authors of the JAMA paper also suggest looking to the ACO Investment Model of CMS and Hawaii’s experience with population-based payments for primary care. Other emerging examples offered include the Blue Cross Blue Shield of North Carolina Accelerate to Value program or the Blue Cross Blue Shield of Massachusetts pilot for independent primary care practice, both of which the authors suggest should speed implementation.

"By abandoning the fee-for-service reimbursements that disproportionately reward specialist and procedural care, true population-based payments at the organizational level may stimulate redistribution of resources from specialists toward primary care, improving population health,” the authors write.